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