FAQs on Taxation - Real Estate

FAQs on Taxation - Real Estate
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 percent (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-�-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, guest house, 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.
FAQs on Taxation - Gold
Are there any tax implications for investing in gold?

No, investing in gold doesn't entail any tax implications.
What is the long-term or short-term capital gains liability, arising at the time of sale?

Ornaments made of silver, gold, platinum or any other precious metal and precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel are treated as capital assets. Hence, a long-term or short-term capital gains liability will arise at the time of sale.

Gold or jewellery when held for the period more than 36 months is treated as long-term capital asset. If they are held for period of less than 36 months, then they are treated as short-term capital assets.

While calculating capital gains, the assessee is entitled to claim as deduction the cost of acquisition from the sale value. In the case of long-term capital gains, the indexed cost of acquisition is allowed as deduction.
In case of a capital loss, 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 capital gains tax liability?

Tax liability arising from long-term capital gains, on the sale of gold or other jewellery can be optimised by investing in a residential house under Section 54 or any other specified assets like capital gains bonds.

Short-term capital gains can be adjusted against short-term capital losses.
What are the Gift Tax implications pertaining to gold?

Gold doesn't fall under the purview of Gift Tax; hence there are no tax implications.
Are investments in gold subject to tax implications under Wealth Tax?

Yes, gold falls under the purview of the Wealth Tax Act. The tax is levied on jewellery, bullion, furniture, utensils or any other article made wholly or partly of gold, silver or platinum.
What are the tax implications of investing in gold bonds issued by SBI?

Under the SBI Gold Deposit Scheme, the following are eligible to make investments, individuals - either singly or two individuals on a 'first holder or survivor' basis, Hindu Undivided Family (HUF), trusts and companies.

The tax benefits of investment in the Gold Deposit Scheme are:

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No Income Tax implications on the interest income
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No Wealth Tax implications on the gold deposited
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No capital gains liability

FAQs on Taxation - Charity
Can individuals claim tax benefits for donations to charities? Are all donations made eligible for tax benefits?

Yes, individuals can claim tax benefits on eligible donations to charities. Deductions are available under Section 80G to any taxpayer i.e. individual - resident and non-resident, firm, HUF, company.

But, all donations are not eligible for deductions. Tax deductions can be claimed only on specific donations i.e. those made to prescribed funds and institutions.
What are the benefits available for deductions, in terms of percentage of the amount donated?

The tax benefits on donations are available under Section 80G of the Income Tax Act and have been segregated as follows:

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Those eligible for 100% deduction on the donation amount,

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Those eligible for 50% deduction on the donation amount,

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Those eligible for 100% or 50% deduction on the donation amount, subject to maximum of the 10% of the gross total income.

Is there an upper limit on the amount for purpose of claiming tax benefits?

No, there is no upper limit on the amount of donation. However in some cases there is a cap on the eligible amount i.e. a maximum of 10% of the gross total income.

The limit is to be applied to the adjusted gross total income. The 'adjusted gross total income' for this purpose is the gross total income (i.e. the sub total of income under various heads) reduced by the following:

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Amount deductible under Sections 80CCC to 80U (but not Section 80Gl)
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Exempt income
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Long-term capital gains
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Income referred to in Sections 115A, 115AB, 115AC, 115AD and 115D, relating to non-residents and foreign companies.

Should any documents be maintained by the donors for the purpose of claiming tax benefits?

Yes, the donor is required to maintain a proper receipt as evidence of the payment of donation.
Can an individual claim benefits for donations made, if he doesn't hold the necessary documentary evidence?

In order to claim the benefit for donations made, it is necessary to furnish, along with the return of income, the proof of payment made towards the donation to the eligible institution or fund. Tax benefits cannot be claimed without aforementioned documents.
Can NRIs claim tax benefits for donations made to charities?

Yes, NRIs are also entitled to claim tax benefits against donations, subject to the donations being made to eligible institutions and funds.