Q1. What are the taxation formalities I need to complete while purchasing a property?
A1. From the point of view of taxation no special formalities are required for completing while buying the property. However, proper Agreement to Sale etc. must be done and the ownership and the title should be verified to ensure that one does not have a problem at a later stage in respect of such property.

Q2. What are the taxation formalities I need to complete while selling a property?
A2. Sale of residential accommodation may result in a short term capital gain/loss if sold within a period of 3 years or a long term capital gain/loss if sold after a period of 3 years from the date of acquisition (Section 29A, 42A and 47).
b) A short term capital gain/loss will be treated and taxed in the same manner as any other income/ loss.

c) Tax on long term capital gain can be avoided if the sale relates to a property other than one residential accommodation and reinvested in any residential property within a period of 1 year before or 2 years after the date of transfer (Section 54 F).

d) Long term capital gain can also be saved if only the capital gains (and not the total sale proceeds) is invested for a period of 3 years in specific Bonds of National Highways Authority of India or Rural Electrification Corporation Limited (Section 54 EC).

e) Determination of sale proceeds of a Property will be on the valuation adopted by the State Stamp Duty and Registration Authorities and not the amount mentioned in the Deed of Conveyance (Section 50C). This is intended to cover cases where part of the sale price is received by the seller in unaccounted cash.

f) In the absence of either freezing the capital gain in specified securities or reinvested as per clauses (d) and © as above Income Tax is payable @ 20% by the seller on the capital gains computed by deducting from the Sale proceeds the cost of acquisition as increased by cost of living index (Section 112 and Section 55).

Q3. How can I calculate the income from house property?
A3. The systems of calculating income from house property broadly speaking would be as under:

Actual rent received from property
Less: House Tax to the extent actually paid by the assessee
Balance: i.e. Annual Value
Less:
(1) 30% of the annual values
(2) Actual Interest in respect of loan for the property
Net taxable income from house property

The above-mentioned formula would enable most of our readers to claim correct deduction in respect of income from house property.

Q4. Is it advisable to choose a fixed or a floating rate when selecting a home loan?
A4. Choosing the floating rate of interest or not depends upon the perception of the client. Personally I would feel that fixed rate is good so that I am aware of my liability for interest in years to come and when the interest rates are lower on housing then also it is better to think of a fixed rate. However, as the situation stands as on today I feel that the interest on loan taken should be floating rate of interest because correction is expected in the interest in the coming period.

Q5. My wife & I have jointly taken housing loan for a single housing unit. Can we both avail tax benefits in our individual tax returns & how much?
A5. Happy and relax and get the benefit of enjoyment of tax deduction for both of you. Please do remember that the benefit in respect of interest on loan as also on repayment of the housing loan etc. is allowed to each co-owner of the property. Hence, you as well as your wife will be able to claim the benefit of tax deduction in respect of interest on loan as well as on repayment of loan.

Q6. Can I avail tax benefits for buying land? I want to invest in land rather than flats and I will avail bank loan for the same. Can I avail a tax benefits for this loan?
A6. If you want to invest only in land then no income-tax benefit will be available to you. However, you buy the land and thereafter you construct your house on the same then the total value of your residential property will comprise of cost of land as well as the cost of construction. In this event, you will be able to enjoy the tax benefits on the full amount of the property inclusive of the cost of the land. Please contact your nearest bank for obtaining details about the loan on the land. Generally speaking, a bank will give you loan for construction of the property on the land owned by you. There are options even available where you can obtain loan even on the land.

Q7. How do I calculate the capital tax gain?
A7. For the purpose of Real Estate the Long-term Capital gain would be only if you hold the property for more than three years, then it is subjected to tax @20% only. In case you sell the property in less than three years time then it would become short-term Capital Gain and the same is required to be taxed at the prevailing tax schedule of the rate applicable to the assessee depending on his other incomes.

Q8. Is there any way I can be exempted from paying Capital Gain Tax?
A8. Innumerable ways and options are available for saving capital gains. For example, in the first place invest in a residential house property or a flat to make investment so as to see that capital gains are exempted. Likewise, if a person were to make the investment in REC or NHAI bonds then also he enjoys complete exemption from the long-term capital gain payable by him in respect of capital gains due.

Q9. Can I include following in cost of a property:-
a) Interest paid during construction period
b) Loan processing fee
c) Brokerage paid
d) Stamp duty paid
e) Misc. other direct/indirect expenses related to purchase of property i.e. travel, conveyance, hotel stay, telephone calls etc.
A9. Interest paid during the construction period would enjoy tax benefit in total five years as per s.24 of the I.T. Act, 1961. The Loan processing fee, the brokerage, the stamp duty can be added to the cost of the property. The misc. expenses if they can be attributed directly to the purchase of the property then they would form part of the cost of the property.

Q10. According to Income Tax laws, when is a person considered to own a house - at the time of allotment or at the time of possession?
A10. The ownership for Income-Tax purpose would be when you receive the possession. Even if payment is not made but possession is received, it will be treated as a sale transaction.

Note: If you have not found an answer to your query, you can contact our taxation expert at advice@karnalproperty.com