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V Nagarajan: Capital gains exemption due to delay in construction in Indian realty project
March 04, 2018
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I sold my land in India and reinvested in a villa project.  However, the villa project may take another year for completion. Am I entitled for capital gains exemption due to delay in construction?  Please clarify. Shailesh Babu, Dubai. Assuming it is a long-term capital gain, if you invest within a period of one year before or two years after date of transfer of the property, purchased one residential house property in India or constructed one residential house property in India within three years from the transfer date, you will be exempt from tax under section 54 of the Income-tax Act.  In your case, you have invested in an ongoing project due to be completed soon.  Courts have held that instances like yours should be regarded as ‘construction’ and entitled for capital gains exemption. 

There are instances of inordinate delay in the implementation of residential projects in India.  And judicial precedents have ruled that the provisions of section 54 are benevolent in nature. 

I borrowed funds from multiple institutions to invest in both residential and commercial property in India.  Is it beneficial in terms of taxation when I receive regular rental income from the assets? Dayanand, Sharjah.
Yes. It is advantageous to borrow funds and invest in real estate assets when you get regular flow of rental income.  For residential property, apart from interest and principal repayment deductions, deduction is available in respect of payment of house tax as also a special 30 per cent deduction towards repairs, maintenance and collection charges. This is applicable irrespective of your spending on the repairs. Moreover, complete deduction is available without any upper limit of the interest paid by an NRI for purchase of property, which is given on rent. 

I own commercial property in Pune which is valued at Rs10 million and receiving regular rental income every month. I wish to raise short-term funds through mortgage loan.  What is the procedure involved while mortgaging the unit? Please clarify. Mukul, Dubai.
Loans against immovable property fetching regular monthly income are available at competitive rates nowadays as there is a fierce competition between various banks and housing finance companies. You can mortgage the commercial property without the need to obtain permission from any authorities.  However, if you wish to mortgage the property to an institution abroad then prior approval of the apex bank is required.

Notes

Affordable Homes

The central government has asked builders not to charge any GST from homebuyers as the effective GT rate on almost all affordable housing project is 8%, which can be adjusted against the input credit.

The GST council had extended the concessional rate of 12% GST for construction of homes under the Credit Linked Subsidy Scheme (CLSS) to promote affordable housing, which has been given infrastructure status in 2017-18 budget.  The effective GST rate, however, comes down to 8% after deducting one-third of the amount charged for the house, flat, towards land cost.  This provision is effective from January 25 this year.  All inputs used in and capital goods deployed for construction of flats, houses, etc. attract GST of 18% or 28%.  As against this, affordable housing projects would attract GST at 8% now.

Warehousing Leasing Up

Leasing activity in the logistics and warehousing segment across India registered a half yearly growth of 50 per cent during H2, 2017 period, to touch 10 million sqft, signalling that the short-term disruptions caused by GST have abated.

As per CBRE South Asia’s India Industrial and Logistics Market View, H2, 2017, demand for logistics and warehousing space was largely concentred in Bengaluru (39 per cent), Delhi-NCR (20 per cent) and Chennai (13 per cent).  The only other city to witness sizeable demand was Mumbai (9 per cent).  Smaller cities such as Kolkata, Ahmedabad, Hyderabad and Pune, collectively accounted for 19 per cent of the demand.  During H2, 2017, space take up was dominated by 3PL, engineering and manufacturing, FMCG and e-commerce companies.

Hyderabad Realty

Hyderabad’s commercial stock has been estimated at 56 million sqft as of 2017 with leasing of over 6.8 million sqft of commercial space. The demand growth is expected to translate into higher push for residential units, according to CBRE survey.

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The author is a business analyst
covering Indian property markets
 

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