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V Nagarajan: Ways to claim tax benefits on under-construction property in India
August 19, 2018
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I am selling an apartment, which is partly built and not completed by the developer. Can I claim tax benefits in under construction property? Please advise. Smitha Bhat, Sharjah
The profits made on sale of partly built property will depend on the time interval between your date of booking the property and the date of agreement to transfer your right to the prospective buyer. In case the interval is not more than 24 months, the profits so made shall be treated as short-term capital gains and shall be added to your regular income and taxed at the slab rate applicable.  In case the interval is more than 24 months, the difference shall be treated as long-term capital gains.

The benefit of indexation shall be available in respect of the each payment made.  You can avail the benefits of exemptions available for investing in another house under Section 54F. However, you will have to invest the net consideration for purchase or construction of another house and not the capital gains as required under Section 54.

I have inherited immovable property bought in 2006 and my relative invested in the property in the year 1985. From which period, the cost inflation index should be considered for capital gains liability purposes? Is it from the date of inheritance or from the date of original purchase by the donor? Please clarify. Raghavender Reddy, Dubai.
Where an asset is acquired by gift or inheritance, the period of long term capital asset shall be reckoned from the date when the previous owner i.e. your relative, acquired such asset and the indexation shall be allowed accordingly from the year of acquisition by the previous owner.

Section 49(1) also provides similar views. As a result the cost of acquisition as well as the cost of improvement by the previous owner of a capital asset shall be the cost of acquisition of such asset to you for selling such capital asset acquired under gift or inheritance. The indexation shall be allowed from the year of acquisition or improvement by the previous owner. The Appellate Tribunal has also held similar views.

Is tax deduction mandatory while buying new property?  What is the percentage and is there any monetary limit involved in the transaction? Ravi Kanwal, Ajman.  
Yes.  If you are buying your new property for Rs5 million and above then you will have to deduct tax at source at the rate of one per cent from the payments made to the seller. Non-deduction of TDS may result into penalty and prosecution. 

Notes

As per first half of 2018 report, Knight Frank India found that co-working sector took up a significant 32 per cent of the commercial space transacted by the other services sector or 13 per cent of the total space transacted during H1 2018. The segment is expected to grow at an annual rate of almost 30-40 per cent. 

Aggressive plans

Many players have aggressive plans to expand their operations. Few leading developers are reinventing themselves and apportioning nearly 60-70 per cent of their future development potential on creating co-working environment.  From an annual average of three million sqft available currently, co-working space is set to scale upto 11 million sqft by 2021.  In a related development, co-working space is also driving PE investment. 

In a sign indicating a big recovery in realty developers’ confidence in the market, residential launches have more than doubled sequentially during the first half of 2018. Residential launches across top 8 Indian cities have witnessed over 106% sequential and 68% on-year jump during the period.

The rise in number of launches by developers is led by improvement in homebuyers’ response and marginal drop in inventory levels despite new supply addition. While prices have remained stagnant during the period across top 8 cities, sales have grown by 11% from a year ago, according to data from Liases Foras Real Estate Rating & Research.

Quarterly sales have been consistently growing since the third quarter of 2016-17 and have recorded a cumulative 39% growth since then. The recently concluded June quarter posted a growth of 8% with the sales of 69,897 units across 8 tier I cities. MMR contributed almost a quarter of total sales in tier 1 cities and witnessed a growth of 15% from a year ago. NCR and Chennai markets witnessed a drop of 3% and 6%, respectively. Bengaluru and Hyderabad saw 17% growth each.

Affordable housing continued to dominate the performance with close to 60% of the sales of this quarter were contributed by sub-Rs50 lakh segment. Within this the segment of less than Rs25 lakh is beginning to gain more traction with 32% on-year growth.

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The author is a business analyst
covering Indian property markets

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