Part II: De mystifying capital gains
Nov 13, 2013
Source : The Times of India

 

DELHI: Just as buying real estate is a big decision for investors, so is selling. The profits that one makes in real estate may seem lucrative, however, it brings along liabilities in the form of taxes. Since many end-up paying a large amount as taxes on property selling, a sound knowledge of capital gains and ways to save taxes may help buyers.

Capital Gain as the name suggests is a surplus or profit that arises from transfer of a Capital Asset. The capital assets could be shares, bonds, mutual fund investments or real estate property.

Gains arise only when the amount realised on the disposal of an asset exceeds the cost of purchases of the asset. Alternatively there could be a capital loss, if the amounts received from the sale of a capital asset are less than the purchase price. Although the Income-tax Act, 1961 charges income tax on all income earned by a person in India, there is also a tax on capital gains.

In real estate, there are two types of taxes that the seller of the property is needed to pay. These are Short Term Capital Gains (STCG) and Long Term Capital Gain (LTCG).
The concept of Short term or long term capital gain depends on the holding period of the asset. In most instances Short Term Capital Gain arises when the capital assets is held for a period not more than 36 months. However in case of Shares of listed companies and Units of Mutual Funds the period is restricted to 12 months. In case of real estate, the gains would qualify for long term gains if the property is held for a period of 36 months or more.

The difference between STCG and LTCG is most significant from tax planning point of view. Long term capital gains are charged at a concessional rate of tax i.e. at 20 per cent in most cases and further re-investment benefits are available so that one can reduce the tax liability to zero.

However the income from short term is chargeable at the regular rate of tax as per the slab and no investment benefits are available to reduce the tax liability. Further in case of losses on short term assets, benefit of set-off is not available against the gains from long term assets.

How can you calculate the Capital Gain Tax for the purpose of Real Estate?

In case you sell the property during a period which is less than three years from the date of purchase, then it would become short-term Capital Gain and the same would be to be taxed at the prevailing tax slab applicable to you depending on his/her other income. Besides, the benefit of re-investment or repurchase of new house would also not be available. Therefore keep in mind this very important provision of holding the property for atleast 36 months in order to claim the tax benefits.

For the purpose of arriving at the capital gains, the value as per the Stamp duty purpose is taken for the purpose of working out the capital gains. In other words if the agreement is done at a value which is less than the value as per the stamp duty registration purposes, then the value as per the stamp duty shall be taken as sales consideration in order to arrive at capital gains. This is to bring uniformity in taxation by the central and state governments.

Latest Realty News

New sectors drive demand in Noida
Nov 13, 2013
DELHI: The recent times in the realty sector of Noida have seen an upsurge in demand for the upcoming sectors. Sectors like 74, 76, 77, 120 and 121 have witnessed good demand. A lot of new residential projects have been launched in the last few years and buyers have shown keen interest in the projects present in these sectors.
Parsvnath to build township at Gurgaon-Sohna road for Rs 1,100 cr
Nov 13, 2013
DELHI: Parsvnath DevelopersBSE -1.34 % will invest Rs 1,100 crore over the next four years to develop a large, integrated township on Gurgaon-Sohna road.
Pirmal Group's PE firm Indiareit raises Rs 800 cr fund to invest in real estate
Nov 13, 2013
DELHI: Pirmal Group's real estate private equity firm Indiareit Fund Advisors today said it has raised Rs 800 crore capital through a scheme.
DDA's land-pooling policy: Will it dampen property prices in NCR?
Nov 13, 2013
DELHI: Can runaway property prices in Gurgaon and Noida be reined in? That could happen with about 40,000 acres of land expected to come into the market because of Delhi's new land-pooling policy. This could mean some 1.5 million apartments will be launched over the next three-four years in the city, possibly having an impact on the appreciation in the value of property in the wider National Capital Region, which includes Gurgaon and Noida.
What to do in case of theft of property documents
Nov 12, 2013
DELHI: The loss, theft or misplacement of property documents is a cause of concern forproperty owners since no transaction can be completed without checking the original sale deed.
Top realtors rush to hills to tap holiday home demand
Nov 12, 2013
DELHI: Luxury holiday homes in the hills are once again becoming an object of desire and India’s top real estate companies are ready to meet this demand, especially as the slowdown has eroded sales in urban markets. Entrepreneurs, retired industrialists and top executives are all looking to pick up a second home to get away from the hassles of city life.
Checklist to buy a property: Santhosh Kumar, CEO-Operations, Jones Lang LaSalle India
Nov 12, 2013
DELHI: The current slowdown in the Indian economy has impacted several sectors, including real estate. Apartment sales volumes have plummeted and inventories have piled up, creating an ideal environment for buyers to negotiate with developers.
Harsh realty for builders as banks tighten lending rules
Nov 11, 2013
DELHI: The real estate sector, accounting for the maximum number of new projects — 53 of 173, each above Rs 250 crore, in April-September this fiscal — is facing difficulties in achieving financial closure for these projects.
Essential questions that home buyers must ask their real estate developer
Nov 11, 2013
DELHI: Buying an apartment is fraught with risks. From choosing the right builder to ensuring that he is the actual owner of the land on which he is developing the project, there are many issues that you need to look into before deciding to put your life's savings in a builder's project.
How to improve your credit history and score
Nov 09, 2013
DELHI: An individual’s CIBIL report and score, other than his/her income, is the single most important tool used by a lender to evaluate application for any loan or credit card. It is therefore important for you to check your credit report and score before applying for a loan, so that it is viewed favourably by lenders.

Latest Realty News Of State

Realty Talk's