Budget 2014-15: Buying more than one House? Fork out capital gains tax

Looking to sell your ramshackle ancestral house to buy a couple of flats? Be prepared to shell out a hefty sum in capital gains tax, as the Budget 2014 -15 has capped tax breaks available to such home buyers.

This has been done through a seemingly innocuous tweak in the language of Sections 54 & 54

F of the Income-Tax Act.

Until this Budget (2014-15), anyone selling buildings, land or / other long-term assets and using the money to purchase a residential home within three (3) years of the sale was not required to pay capital gains tax (20%) on the sale proceeds.

But the Finance Minister Mr. Arun Jaitly has now tweaked this section to specify that only “one residential house in India” would be eligible for the tax break, instead of “a residential house”.

If you are wondering what the difference is between “a residential house” and “one residential house”, tax experts say it is quite substantial. This will bring a large number of hitherto exempt property transactions within the tax net.

For instance, earlier, if you realised Rs. 4 crore as capital gains from the sale of land and bought four (4) apartments of Rs. 1 crore each, you would not have to pay any capital gains tax on your sale. But now, you will escape capital gains tax only on Rs. 1 crore deployed in a single home while paying a 20% tax on the remaining Rs. 3 crore of gains.

“This proposal will hit the middle class home - buyer the most. Given that the Budget  2014-15  has elsewhere proposed to provide a boost to middle-class housing, this seems contradictory,” says Mr. Anish Thacker, Tax Partner, Ernst & Young.

“There may be quite a few instances where siblings inherit a home from their ancestors & sell it to buy multiple houses across the city. To expect such properties to be contiguous would be unrealistic,” he explained.

The new rules will also hit landowners who enter joint development agreements, points out Mr. K Vaitheeswaran, an advocate at Chennai. They were earlier able to offset capital gains tax on any number of apartments they received from the builder / promoter, but this amendment restricts it to just one flat, he says.

In larger deals in suburban areas, the landowners will have no option but to reinvest in a single piece of land to avoid capital gains tax, said a Chennai based developer.

Src: Hindu

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