Sell­ing a house? Here’s how to deal with cap­i­tal gains

It has its charms and if you have the req­ui­site per­mis­sions your prop­erty could sell for 5.6 crore to 20 crore SPOT THE MON­U­MENT Sell­ers have the op­tion of ei­ther ac­quir­ing an­other prop­erty or in­vest­ing in bonds to avoid pay­ing cap­i­tal gains tax

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Even as the real es­tate sec­tor rocks be­tween highs and lows, the de­mand for res­i­den­tial prop­er­ties near an­cient mon­u­ments and sites in non- con­gested areas re­mains high. Liv­ing close to ‘a slice of his­tory’ has its charms for prop­erty buy­ers, say real es­tate ex­perts.

Many of the an­cient mon­u­ments and sites in Delhi, such as Hu­mayun’s Tomb, Lodi Gar­den and Qutab Mi­nar have pic­turesque and open en­vi­rons but oth­ers have mar­kets and con­gested res­i­den­tial areas around them.

About 174 an­cient mon­u­ments and sites in Delhi a r e m a i n t a i n e d by t h e Ar­chae­o­log­i­cal Sur­vey of In­dia ( ASI ). Sev­eral posh areas in Delhi have more than one an­cient mon­u­ment – South Ex­ten­sion be­ing a case in point with the tombs of Kale Khan, Bhure Khan, Chote Khan, Bade Khan and Darya Khan as well as the tomb and mosque of Mubarak Shah.

Realty agents say prices of prop­er­ties close to an an­cient mon­u­ment or site are con­sid­er­ably higher than the area’s pre­vail­ing prices pro­vided that the con­struc­tion is new. HS Sahni, an agent in Niza­mud­din, said prospec­tive buy­ers while look­ing for an apart­ment or in­de­pen­dent unit in Niza­mud­din East pre­ferred l oca­tions near Hu­mayun’s Tomb. He said a newly con­structed floor in a build­ing near the bound­ary walls of the tomb was priced be­tween ₹ 5.6 crore and ₹ 6.6 crore de­pend­ing on the lo­ca­tion and type of con­struc­tion. A sin­gle floor in a 400 sq yard plot not far from the tomb was val­ued at ₹ 12 crore.

In­ter­est­ingly, in areas like Niza­mud­din East, Hauz Khas and Green Park prop­er­ties are read­ily avail­able on sale. Sahni said there were around 10 flats and two houses for sale near Hu­mayun’s Tomb. Some prop­er­ties are built on 200 sq yard plots. The houses, most of them old struc­tures, cost over ₹ 16 crore and the apart­ments go for any­thing be­tween ₹ 5.5 crore and ₹ 6.5 crore.

A num­ber of prop­er­ties on the mar­ket are near an­cient mon­u­ments in Hauz Khas, Green Park and part of the Saf­dar­jung Development area, says Des­raj Kaun­dal of SDR Real Es­tate Agents. Over 20 prop­er­ties, mostly in­de­pen­dent hous­ing units, are for sale, their plot sizes vary­ing from 140 sq yd, 265 sq yd, 300 sq yd and 500 sq yd. The prices range from about ₹ 10 crore (for a 265 sq yard prop­erty), ₹ 12 crore (300 sq yd) and be­tween ₹ 18 crore and ₹ 20 crore (for 500 sq yard).

Prices of prop­er­ties near an­cient mon­u­ments de­pend on whether or not the prop­erty owner has got per­mis­sion for ren­o­va­tion or re-build­ing from the author­i­ties. South Ex­ten­sion has tombs of Kale Khan, Bhure Khan, Chote Khan, Bade Khan and Darya Khan as well as tomb and mosque of Mubarak Shah The Niza­m­mudin area has Hu­mayun’s Tomb, Isa Khan Tomb, Ab­dul Rahim Khan-eKhana Tomb, Arab Ki Sarai, Nili Ch­ha­tri, Nila Gum­bad, Chausath Khamba, Barakhamba, Sufi saint Niza­mud­din Au­lia’s mazar

No per­mis­sions mean no buy­ers so sell­ers are will­ing to let the prop­er­ties go cheap. Own­ers of homes that are old pre­fer to wait till they can get per­mis­sion to ren­o­vate or build to get a bet­ter price.

Buy­ers pre­fer newly con­structed prop­erty with mod­ern fa­cil­i­ties. Be­ing new, such prop­er­ties re­quire min­i­mal re­pair work – so clear­ance from author­i­ties would not be re­quired. Buy­ing older prop­er­ties would also mean that buy­ers would face the tra­vails of get­ting the re­qui-

10 crore (for a 265 sq yard prop­erty), 12 crore (300 sq yd) and be­tween 18 crore and

20 crore (for 500 sq yard) site per­mis­sions to con­struct and ren­o­vate. Ev­ery an­cient mon­u­ment and site has a pro­tected limit de­ter­mined by the Ar­chae­o­log­i­cal Sur­vey of In­dia. Any con­struc­tion, ren­o­va­tion and re­pair work of up to 300 me­tre cir­cum­fer­ence of the pro­tected limit of the mon­u­ment and site is mon­i­tored by the National Mon­u­ment Authority (NMA). This was ear­lier be­ing done by the ASI but once the NMA was set up in 2011, it be­came the mon­i­tor­ing authority. In Delhi, the Com­pe­tent Authority at present is ASI direc­tor Dr DN Dimri. In the NMA based in Ti­lak Marg, such mat­ters are looked af­ter by NMA mem­ber secretary Navneet Soni.

Speak­ing to this writer Soni said no con­struc­tion was al­lowed within 100 me­tre di­am­e­ter of the pro­tected limit of a Cen­trally pro­tected an­cient mon­u­ment and site. Re­pairs and ren­o­va­tion though are al­lowed on prop­er­ties that have been in­ex­is­tence since 1992 or those built with the ap­proval of the direc­tor general ASI. Sourabh Sharma bought a prop­erty in 2000 for ₹ 10 lakh. Af­ter oc­cu­py­ing the apart­ment for al­most 16 years, he is con­tem­plat­ing sell­ing it to a buyer this year for ₹ 50 lakh. Given the at­trac­tive deal, he can­not re­sist go­ing for­ward with the sale but is wor­ried about the long term cap­i­tal gain (LTCG) taxes ap­pli­ca­ble on the sale of prop­erty. His main cause of worry is that he may have to pay one-fifth of his prof­its from the sale of the prop­erty to the government as taxes.

Un­der the pro­vi­sions of the In­come Tax Act, 1961, in case the cap­i­tal gains on sale of a res­i­den­tial prop­erty are short term cap­i­tal gains (ie prop­erty has been held for a pe­riod of 36 months or less), there are no spe­cific ex­emp­tions/ben­e­fits pro­vided to an in­di­vid­ual. How­ever, in case of long term cap­i­tal gains, there are sev­eral pro­vi­sions which can be availed to re­duce the tax li­a­bil­ity.

In this ar­ti­cle, we dis­cuss the ways in which one can ju­di­cially in­vest long term cap­i­tal gains to avoid pay­ing hefty taxes dur­ing the year the prop­erty is sold.

Ac­qui­si­tion of an­other prop­erty: Sec­tion 54 of the In­come Tax Act, 1961 pro­vides re­lief to an in­di­vid­ual or an HUF (Hindu un­di­vided fam­ily) from pay­ment of long term cap­i­tal gains tax if cap­i­tal gains are utilised for pur­chas­ing/con­struct­ing an­other prop­erty. But the ex­emp­tion is sub­ject to con­di­tions: The as­set trans­ferred should be a res­i­den­tial prop­erty; Cap­i­tal gains are utilised to pur­chase an­other res­i­den­tial prop­erty within a pe­riod of one year be­fore or two years af­ter the date on which the sale took place. Or these should be utilised to con­struct a prop­erty within three years of trans­fer. The said ex­emp­tion is sub­ject to a con­di­tion that the prop­erty can­not be sold for three years af­ter ac­qui­si­tion What hap­pens if pro­ceeds from the sale are not in­vested be­fore the due date of fil­ing re­turns? As per sec­tion 54, the as­sessee is given two years to pur­chase the prop­erty or three years to con­struct the prop­erty but cap­i­tal gains on sale of res­i­den­tial prop­erty is tax­able in the year in which it is sold Given that in­come tax re­turn for the said year is re­quired to be fur­nished by a spec­i­fied time pe­riod, the as­sessee will have to take a de­ci­sion till the date of fur­nish­ing such re­turn of in­comeinorder­toavoid levy of tax on cap­i­tal gains. In or­der to avoid this, the pro­vi­sions of the Act pro­vide for a re­lief from tax if such an amount is de­posited by the as­sesse into a cap­i­tal gains ac­count scheme The amount of cap­i­tal gains not utilised by the as­sessee for pur­chase or con­struc­tion of prop­erty be­fore the date of fur- nish­ing the in­come tax re­turns can be de­posited un­der the cap­i­tal gains ac­count scheme If the amount de­posited un­der the scheme is not utilised wholly or partly for the pur­chase or con­struc­tion of the new as­set within the pe­riod of two or three years, then, the amount not utilised shall be charge­able as long term cap­i­tal gains In­vest­ment in spec­i­fied bonds: Long term cap­i­tal gains aris­ing from sale of a res­i­den­tial prop­erty can also be claimed as ex­empt un­der sec­tion 54EC of the Act if within a pe­riod of six months af­ter the date of sale of prop­erty, such gains are in­vested in long term cap­i­tal bonds as no­ti­fied by the government within a pe­riod of three years. The max­i­mum amount one can in­vest un­der this scheme is re­stricted to ₹ 50 lakh per fi­nan­cial year.

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Long term cap­i­tal gains from sale of res­i­den­tial prop­erty can be claimed as ex­empt un­der sec­tion 54EC of the In­come Tax Act.

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