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V Nagarajan: Capital gains exemption for reinvestment in luxury home in India
July 08, 2018
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I am planning to sell two commercial properties in Bengaluru and Pune and reinvest the sale proceeds in one luxury home. Will I get capital gains exemption for investment? Please clarify. Rohan, Dubai.
Capital gains exemption under section 54F is available if investment is made from the sale of any long-term capital asset (not being a residential house).  This has to be made within two years from the date of sale or within three years from the date of sale in case of construction, you are entitled to claim long-term capital gains exemption under section 54.    

I own a portion of land in Kochi. Is it safe and advisable to give the land on joint venture as I am unable to sell the land in the current market situation? Kuruvilla, Sharjah.
With the implementation of RERA, you need not have any anxiety to part with your land for joint venture development as non-compliance penalties are rigid nowadays.  Moreover you have the tax benefit as well.  On joint development, earlier capital gains was charged at the time of entering into the Joint Development Agreement (JDA), but now it is after completion of the project, which makes much more sense and gives you enough time to plan your deployment exercise.

A group of NRIs living in the Gulf is planning to promote affordable housing projects in select Indian cities. Is the incentives available lucrative to venture into affordable housing projects? Kindly clarify. Pradeep, Dubai. 
The government has extended the 100 per cent tax deduction scheme for affordable housing projects approved between June 2016 and March 2019, by two more years till 2021.  Infrastructure status has been given to affordable housing projects.  You can take long-term funds from institutions such as insurers and pension funds. Insurance firms and pension funds need to invest certain portion of their money in infrastructure sector and the affordable housing now qualifies for those funds.
 
As per the revised norms, MIG-I category home buyers with household income between Rs6 lakh and Rs12 lakh are now eligible for a subsidy for homes up to carpet area of 160 sq.m from the earlier 120 sq.m. Similarly, MIG-II category home buyers with household income between Rs12 lakh and 18 lakh are also eligible for a subsidy for homes with a carpet area of up to 200 sq.m from the earlier it was 150 sq. m.
 
The housing loan interest subsidy scheme is a game changer that gives subsidy of up to 6.5 per cent. The scheme was initially launched for EWS/LIG but now has been modified and extended to MIG also which is a very good step. Holding of property is down to 2 years to qualify as a long term capital asset.  Other fiscal sops include when a builder earlier had unsold flats in a completed project, the notional rent was taxed on these unsold flats from the year in which the project was completed. Now, notional rent of properties will be taken as nil for one year from the date of obtaining completion certificate.  On joint development, earlier capital gains was charged at the time of entering into the Joint Development Agreement (JDA), but now it is after completion of the project.
 
Notes
 
Built-In Units
 
Affordable housing has received a big boost over the past year on account of benefits of lower tax rate and input tax credit. 
 
Being out of GST ambit, demand for built-in units is also growing. The rate for affordable housing was cut to 8% effective January 25. The reduced rate is applicable to 645 sq.ft homes purchased through credit linked subsidy scheme under the Prime Minister Awas Yojana.
 
Impact of GST
 
With the market opening up beyond state boundaries, GST’s immediate benefit to developers is visible in an increase in the credit flow of taxes paid on procurements. Further, the GST law mandates the passing on of benefits arising due to increased credits to customers by way of reduced prices.
 
However, the timelines and manner of computation of such benefits are not clear under the law.
 
Further, with maximum benefits available to projects which are yet to commence and minimum benefits to those nearing completion, it will be an uphill task for developers to compute the overall benefits arising due to GST and the quantum of such value transferable to customers.
 
The cascading effect of taxes has been mitigated under GST, with construction services specifically being classified as ‘supply of service’.
 
Further, as highlighted earlier, the tax rate has also been pegged at 18%, with an abatement of one-third being provided towards land value, thereby reducing the effective tax rate to 12% of the entire agreement value, according to JLL-PwC survey.

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The author is a business analyst
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