Budget 2017 - 18: Three Cheers For Property Holders..!

Budget 2017 - 18: Three Cheers For  property holders Capital Gains Tax Provisions..!

By  SNEHA SHARON MAMMEN, proptiger.com

Three measures announced by Finance Minister  mr. Arun Jaitley in his Budget 2017-18 have come as some good news for property holders.

·        The holding period for availing lower rate of long-term capital gains tax has been reduced from 3 to 2 years. This will also bring in more supply in the market.

·        The base year for computing capital indexation benefit has been tweaked — from the existing April 1, 1981 to April 1, 2001.

·        Number of financial instruments (long-term capital bonds) to save long capital gains to be increased.

These come as a welcome change and will provide relief to tax payers, earning profits from sale of an immovable property; these could trigger investment flow, too.

What is capital gains tax?

Until an asset is sold, the value of a capital asset, like a house, can not be estimated in real terms. The gain is not realised unless the property changes hands.

Short-term capital gains mean those held for less than a year long-term gains (LTCG) must find a mention while income tax is filed and therefore the significance is much higher.

In the list of immovable property, only rural agricultural land is excluded from being called a capital asset.

LTCG is computed as the difference between net sale proceeds and the indexed cost of acquisition and improvement.

As prescribed, if any cost to acquire or / improve has been incurred by a home buyer, it needs to be indexed or / inflated.

In order to avail an exemption from LTCG, property sellers usually reinvest the gains in another property within the country. Another way to save your money is when you invest it in notified bonds within 6 months of the sale. However, there is a limit to this.

As per section 54EC, you can only invest up to Rs. 50 lakh. As of now, there were only two channels- the National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC). The interest rates are usually modest, at 6% and is taxable, this is why, the 2 scenarios usually prevail:

·        Many prefer paying the taxes than investing for such a modest interest rate. They choose to invest whatever remains in quality equity funds, or

·        The lock-in period was three years and thus it was tempting to pay the tax and earn handsomely on the returns on the balance.

However, these bonds are the best investments you could make despite the interest being taxable. With more number of instruments coming your way and a shorter lock-in period, it becomes more attractive an option.

Promoters, too, can pay capital gains tax within a year after construction. This would be beneficial for landowners thereby reducing prices, the effect of which can be enjoyed by homebuyers.

Moreover, Mr. Jaitley proposed to exempt persons holding land on June 2, 2014, and whose land is being pooled for the creation of capital city of Telangana under government schemes from capital gains tax.

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