What are the tax implications when you sell property? Read on to find out.
Are there any tax implications of making investments in real estate?
There are no tax implications for making investments in real estate.
What is long-term/short-term capital gains liability, arising at the time of sale?
In case of immovable property being sold within a period of 36 months from the acquisition, the gain arising there from would be short-term capital gain and liability for taxation at 30%.
In case the immovable property has been held for more than 36 months, the gain would be long-term capital gain and the tax thereon would be at the rate of 20%.
The assessee would be entitled to index the cost as per the cost inflation index. If the asset has been purchased prior to April 1, 1981, then the assessee would be entitled to substantiate the cost by the market value as on April 1, 1981 and index the cost thereafter. Long-term capital gain is taxable at a flat rate of 20 per cent (plus surcharge plus education cess) for the assessment year 2005-06.
Is it possible for investors to set-off their capital gains tax liability by investing in capital gains bonds?
Long-term capital gain liability can be set off by investing in capital gains bonds as per the provisions of Section 54EC. However, care should be taken to see that the investments are made within a period of 6 months from the date of transfer or before the due date of filing the return, whichever is earlier.
In case of a capital loss (short-term/long-term), for what duration can the same be carried forward by investors?
A capital loss (short-term/long-term) can be carried forward for a maximum period of 8 years from the assessment year in which the loss was first incurred.
A short-term capital loss can be set off against any capital gain (long-term and short-term); however a long-term capital loss can be set off only against a long-term capital gain.
How can investors optimise their long-term/short-term capital gains tax liability?
Investors can minimise their long-term capital gain tax liability by either investing in capital gains bonds or by investing in residential house property under the provisions of Section 54, Section 54F and Section 54EC of the Income Tax Act, 1961.
Short-term capital gains can be adjusted against short-term capital losses.
How is rental income from one's property treated for the purpose of taxation?
Rental income has to be taxed under the head 'Income from house property.' Deductions are available under Section 23 and Section 24 of the Act. It may be noted that a deduction is available for repairs, whether incurred or not. Actual expenses are deductible, except for municipal rate.
Are NRIs/foreigners permitted to own property in India?
NRIs/foreigners are permitted to own property in India in most of the categories. However, there are certain categories like agricultural land, land for housing project wherein NRIs/foreigners are specifically not entitled to own property.
Are different tax laws/implications applicable to NRIs/foreigners vis-à-vis the ones applicable to resident Indians?
The laws applicable to NRIs would be Income Tax Act, Wealth Tax Act, Gift Tax Act, Transfer of Property Act and FEMA among others and the implications would depend upon the facts of each case.
What are the Gift Tax implications on transfer of real estate?
There are no gift tax implications on the transfer of real estate. However, after the implementation of the Finance Act 2004, any gift to a person who is not a relative, as defined by the Income Tax Act, would be taxable as income of the recipient on the market value of the gift. The relatives, as defined under the Income Tax Act, would not be liable to such income tax.
Are investments in real estate subject to tax implications under the Wealth Tax?
As per Section 2 (ea)(i) of the Wealth Tax Act, guesthouse, residential house and commercial building are treated as assets subject to certain exceptions. These assets are liable to Wealth Tax.
Urban land, under Section 2(ea)(v) is an asset liable to Wealth Tax subject to certain conditions. However one house or a part of house or a plot of land not exceeding 500 square meters in area is exempt from Wealth Tax under Section 5(vi).
Can individuals buy agricultural property? What are the legal issues involved in the same?
Only agriculturists can buy agricultural property. NRIs/foreigners are specifically debarred from buying such property.
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