General Property Questions – Tax Perspective
Will I be taxed from sale of land?
Yes, Gain from sale of non-agriculture land is taxable as capital gain. Gain from sale of agriculture land is taxable only if it is located within 8 kilometers from the urban limits.
Source: Income Tax Department
What does capital asset include? Capital assets mean property of any kind held by the assessee except:
(a) Stock in trade, consumable stores or raw materials held for the purpose of business or profession.
(b) Personal effects, being moveable property (excluding Jewellery, archaeological collections, drawings, paintings, sculptures or any other work of art) held for personal use.
(c) Agricultural land, except land situated within or in area upto 8 kms, from a municipality, municipal corporation, notified area committee, town committee or a cantonment board with population of at least 10,000.
(d) Six and half percent Gold Bonds, National Defence Gold Bonds and Special Bearer Bonds.
(e) Gold Deposit Bonds under Gold Deposit Scheme, 1999 notified by the Central Govt.
Source: Income Tax Department
Does the capital gain tax differ according to my period of holding an asset?
Yes. If assets are held for more than 36 continuous calendar months prior to transfer they are called long-term assets and their transfer results in long-term capital gain that is taxed at the rate of 20%. The only exception to this general rule is in respect of securities for which the period of holding prior to transfer is 12 months to be considered as long-term capital asset and the rate of tax is nil, provided securities transaction tax has been paid. Any transfer of assets held for lesser than these periods would result in short-term capital gain. This is taxed at normal rates in respect of all assets except securities.
Can I get any benefit for erosion in the value of money over the years while calculating my gain on sale of asset?
Yes. To neutralize the erosion of value of money over the years the cost index for the year of sale is factored in while calculating the cost of investment so that the impact of inflation is neutralized and only the actual gain to the seller is brought to tax.
I have sold a property and made profit. If the sale amount is reinvested in purchase of a site, is my profit exempt from tax?
No. For getting exemption the nature of property sold is relevant. If you have sold a residential property, the gain received on sale should be reinvested in another residential property [which may include land and building] to qualify for exemption [section 54]. Even if you have sold a property other than a residential property, you will qualify for exemption only if the net consideration is reinvested in a residential property which may include land and building [section 54F].
Which property income is exempt from tax?
Income from farm house (Sec.2(1A)(c) read with sec. 10(1)). Annual value of any one palace of an ex-ruler (Sec.10(19A)). Property income of a local authority (Sec.10(20)), university/ educational institution (Sec.10(23C)), approved scientific research association (Sec.10(21)), political party (sec.13A). Property used for own business or profession (Sec.22). One self occupied property (sec.23(2)). House property held for charitable purposes (sec.11).
Source: Income Tax Department
Deductions U/S 80C for investment in New Residential House
Deduction under section 80C of the Income tax Act is available for investment in house property subject to the satisfaction of the conditions of that section in regard to qualifying amounts in the following circumstances to the individuals/Hindu undivided families.
Payments made towards the cost of purchase/construction of new residential house property during the previous year are eligible for deduction under section 80C.
Section 80C provides that in computing the total income of an assessee, deduction shall be provided in respect of various payments/investments made as included in the aforesaid Section subject to a ceiling of Rs.1 lakh on the aggregate amount of such payments/investments.
Section 80C(5) stipulates that in case an assessee transfers the house property referred to above before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, or receives back, whether by way of refund or otherwise, any sum specified above, then no deduction shall be allowed with reference to any of the sums referred to above and the aggregate amount of deductions of income already allowed in respect of the previous year or years shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.
Source: Income Tax Department
Can rental income received be split between me and my spouse for jointly owned property for which we had invested equally for construction?
Yes. The rental income received can be split between you and your spouse which will be taxed in the individual hands.
Should I calculate the house property income separately for each individual 5 properties let out or club all the rental receipts in one calculation?
The calculation will have to be made separately for the various properties.
What are the expenses that I can deduct from my business receipt while calculating the business profit?
Only those revenue expenses that are directly related to the earning of your business receipt can be claimed as business expenditure. Personal expenses are not allowed to be deducted.