Here is the full transcript of the Expert Chat session conducted by IndiaProperty.com on June 18th, 2015 with CA and Tax Expert, Divakar Vijayasarathy.
Q. I had purchased flat at Pune (Aundh area) in December 1999 for Rs 16 lakh and sold it in October 2014 for Rs 65 lakh. The TDS was also paid. What will be my total tax outgo? And how much money would I need to invest now only to save tax.
A. Here’s the computation for the tax that is payable.
Sale – 65 lakhs
Less Indexed Cost – 16lakhs *1024/389 (Rs. 42,11,825)
Long Term Capital Gains – Rs. 2288175
Tax @ 20% – 457635
Less TDS (65000)
Balance Tax payable – Rs. 392635
Q. In general, could you explain how much tax does one have to pay when he sells his property and the ways this tax can be saved?
A. Capital gains tax is levied on the surplus of sale proceeds over cost. Where the property is held for more than 3 years- the assessee is given the benefit of indexation meaning on an average your cost gets increased by 8-9% annually for computation purposes. This is called as the process of indexation. Savings in capital gains tax generally arises through reinvestment in house property, bonds of RECL and NHAI.
Q. I have taken a home loan for which I am currently paying an EMI of Rs. 15000/month which is going to last till 2019. I am interested in buying one more property in the range of 25-26 lacs and expecting possession by 2017. At present I have capacity to pay 40,000 EMI and my age is 46 yrs. How can I avail tax benefit on the property which I am interested in buying?
A. For the new property – until the property is complete there would not be any tax benefit. However once the property is completed, the interest paid till the year of construction i.e in your case from 2015 till March 2017 – can be claimed from April 2017 onwards in 5 annual installments. Assuming the total interest for this period is Rs 10 lacs- you can claim Rs 2 lacs per year beginning from financial year 2017-18 onwards. This apart you would also be eligible for interest paid on housing loan in addition to the 2lacs mentioned. Since this would be rented out there is no limit to claim the benefit.
Q. I am interested in purchasing a property in the range of Rs. 10 to 15 lakhs. Could you tell me what type of taxes are applicable for a property purchase in this budget?
A. Value of the property has no bearing on levy of taxes – Service tax and state taxes like VAT shall apply on purchase
Q. What are the tax implications if I sell my land and invest in Real estate? Is there any tax benefit or is it just a liability?
A. Yes- if you sell land and reinvest in a residential house property – you can get exemption u/s 54F. But the exemption is not available if you repurchase land. Exemption is proportionate i.e amount invested/sale consideration * capital gains
Q. If flat is sold in City A (State A) and person has in his/her name 2 flats in City B (State A). If another flat is bought in City B (State A), does he get capital gain exemption?
A. Yes- you can claim exemption.
Q. 10% tax without indexation and 20% with indexation – do we need to pay the lower value from these two for real estate capital gains tax?
A. The concept of 10% taxation without indexation applies only for listed shares and securities and not for real estate.
Q. My wife had purchased a property in Mumbai in her name and added her father as co-owner. After marriage I have been paying the EMI to my wife’s account from which the EMI towards her home loan is getting debited. Can I get tax rebate on the EMI paid by me in such circumstance?
A. This is a debatable issue and in all likelihood – the assessing officer will not allow the benefit in your hands. The safer option can be for your wife to claim the benefit if she has income sources.
Q. My wife owns a flat already. I have now booked another flat in my name and want to include my wife as co-applicant to avail special ROI in home loans extended to ladies. If I declare my wife as co-applicant, will the bank find out the existing home loan of my wife and thereby reduce the eligibility of my home loan amount. So is it prudent to include my wife’s name or should I just go ahead with being the sole owner of the second house?
A. As an ex-banker – can suggest that banks would include your wife’s loan only if her income is considered. Otherwise if your income is sufficient for the loan – the bankers shall not have a concern in your wife being added as a co-applicant.
Q. I read recently that if a property is sold after three years of purchase, the resultant gains are taxable at a fixed rate of 20%. How does the tax slab vary for capital gains tax?
A. Yes – where the property is held for more than 3 years – it becomes long term and resultant capital gains is taxable at 20%. So if your salary income is 3 lacs and long term capital gains is 1 lac- you would pay 20% of 1 lacs i.e 20k as capital gains tax and not be slab rates
Q. I see builders offering schemes such as pay just 10% initially and the rest 90% during possession. How does this affect the tax that I would have to pay?
A. As far as income tax is concerned- you can claim the benefit only on the interest you pay during pre-construction. Since in a 10-90 case – you pay only 10% upfront and your EMIs start after possession- tax benefits arise only after your EMIs start and not before that.
Q. What are the deductions possible under a home loan to save tax? Do we get better benefit if we occupy the property post the purchase?
A. On interest paid – upto Rs 2 lacs for self occupied if construction is completed in 3 years. Where it takes beyond 3 years – its only 30k. On let out properties no limits- entire interest paid is allowed. On principal repaid or registration charges – upto Rs 1.5 lacs u/s 80C
Q. I am planning to buy a home in Coimbatore. My parents have suggested that I consider borrowing money from a money lender they know there. Can I claim deduction for tax here? What are the money sources that the Govt accepts for tax deduction?
A. Yes – interest is allowed on loans borrowed from a money lender. However principal deduction u/s 80-C is allowed only from banks and financial institutions
Q. I am an NRI and looking to sell my apartment at Chennai. The flat can be sold for around Rs. 1 Cr. I plan to use this money for financing a property I plan to buy here in San Jose. Do I have pay any taxes here? If yes, how much would that be?
A. There wont be any exemption for your reinvestment in Sanjose. Am assuming you are a resident of USA- in which case , as per the Indo-US DTAA you would be required to pay capital gains tax @ 20% in India. However you can claim tax credit on the taxes paid in India against capital gains tax in US.
Q. I recently read in a blog that the profit arising from a real estate selling can be put into capital gain bonds to save taxes. What are these bonds and when are they useful for a middle-class home buyer like me? Whom do I approach for one?
A. Yes- Sec 54EC gives an option to reinvest in bonds of Rural Electrification Corporation or National Highway Authorities. These bonds give you an upfront return of 20% i.e you save on capital gains tax and yield is around 6% (fully taxable). You can approach any investment intermediary or your banker for this investment.
Q. I would like to know what is notional rent and where is it applicable? I own more than two houses and they are empty. My friends suggested calculating the notional rent to pay taxes. Could you please explain more about the notional rent.
A. Yes – if you own more than one self occupied house you ought to compute notional rent for taxation. Notional rent shall be higher of Municipal valuation (say 4 lacs p.a) or fair rental value (say 4.5 lacs pa) . Where your location is covered by standard rent control act- then your notional rent cannot exceed standard rent (say 4.25 lacs p,a). IN this instance – your notional rent is 4.25 lacs.
Q.We are planning on buying an apartment in Trichy Road in Coimbatore. This is a new apartment which has been kept locked by the owner for nearly three years and is being sold today. Appears as if he was one of the joint owners of this project. How will our tax be calculated? Will it be sold as new property or resale property? How much tax will we have to pay?
A. In this case – even though the property remained unused – am of the opinion that it would be registered as a completed flat -similar to a resale i.e with full stamp duty.
Q. I currently have a joint property in Bangalore, and live in my dad’s house in Chennai? Can I claim 1.5L of tax deductions for home loan EMI payment and also claim HRA?
A. HRA can be claimed as long as you are paying rent to your father. You having a property Bangalore does not have any relevance to it.Also you can claim 1.5 lac principal repayment benefit u.s 80C. Extending a step further you can also claim interest on housing loan upto 2 lacs if your property in Bangalore is occupied by your family.