Welcome To New Seminar Tax Planning of Real Estate AND Money Making Ideas in Real Estate For the first time in India a real power packed seminar on Tax planning of Real Estate as also unique innovative ideas in Real Estate for making your money grow. Strongly recommended for all those who are in the real estate sector as also for all those who would like to join real estate sector as a business or as investment. By SUBHASH LAKHOTIA Tax Guru: CNBC Awaaz Director: Lakhotia College of Taxation & Management Director: R.N. Lakhotia & Associates LLP
Seminar on Tax Planning of Real Estate & Money Making Ideas in Real Estate by Subhash Lakhotia
Important topics to be covered in the Seminar:
1. Real practical objectives of Tax Planning of Real Estate.
2. Real Life tax planning ideas and practical tax saving examples for Investment in Real Estate.
3. Important pointers in Buying, Selling & Renting Properties including Capital Gains tax saving vistas.
4. Important Judicial decisions which help the process of Tax Planning in the wonderland f Real Estate.
5. Money Making Ideas in Real Estate.
6. Utilising Limited Liability Partnership Firms for your Real Estate Investments.
7. The new concept of “Real Estate Business Oxygen Company” for making money in Real Estate.
8. Investment in India by Non Resident Indians.
9. Miscellaneous aspects of Tax Planning of Real Estate Unlimited Questions & Answers.
3(16) Tax benefit on Interest on Loan by Employer .
In the case of Salaried Employees, the benefit of Interest on Loan as per section 24 would be granted by employer only if the employee furnishes a Certificate, from the person to whom any interest is payable on the Capital borrowed, specifying the interest payable by the assessee for the purpose of acquisition or construction of property.
daughter preferably through a 100 % specific beneficiary Trust.
2. Separate tax Return and separate exemption even for Minor Trust receiving property in a Trust as per Supreme Court’s decision in M.R. Doshi.
3(23) Special Provision for Properties received in Gift/Will.
In case the “Property” becomes Capital asset of the assessee under a Will or a Gift the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by cost of improvement – s. 49 of the I.T. Act, 1961.
3(24) Special Tax Provision for taxing Capital Gains.
As per s.50C of the Income-tax Act. 1961 the consideration received for Capital Gains purpose would be the value adopted for Stamp Duty valuation. Also applicable for Power of Attorney & Agreement to Sell transactions from 1-10-2009
3(31) Unique Idea to preserve your primary Residential House.
1. No Loan
2. No Mortgage
3. Keep Title Deed in Bank
Locker with Joint
3(32) Tax Saving on Capital Gains from Residential House
Long -term C/G for individuals and HUF is fully exempt u/s 54 on
transfer of Residential house, if -
A. C/G invested in purchase of a residential house within 1 year before or 2 years after transfer or C/G invested in construction of a residential house within 3 years of transfer; AND
B. No sale of such house for 3 years; AND
C. Utilization of C/G by the date for filing of I.T. Return u/s 139 or deposit of unutilized amount as per C/G A/Cs scheme by last date of voluntary filing of I.T. Return u/s 139 (1).
3(33) Tax Saving On Capital Gains of other assets by investment in Residential House Property
Long -term C/G for individuals and HUF exempt u/s 54F - if the
consideration of any other Asset is invested in-
Purchase of a residential house before one year or within two years
after transfer; or construction of a residential housewithin three years of transfer; AND
B. Then not sold for 3 years; AND
C. Not to Purchase within one year or construct within three years after transfer & to own not more than one residential house on the date of transfer.
Note: Utilization of the net consideration by the date of furnishing I.T. Return u/s 139 is a must or unutilised amount is deposited under Capital Gains A/c Scheme by last date for voluntary filing of I.T. return u/s 139 (1). The amount is to be deposited with a Nationalised Bank. Two optional schemes are available to tax payers. For details, contact nearest branch of state Bank of India or other Nationalised Bank (other than Rural Branch)
3(34) Tax Saving On Capital Gains through Cost Inflation Index Cost Inflation Index for different years The Formula for finding out index cost of acquisition or the “Indexed cost of any improvement” would be as under :- Cost of Acquisition X Cost Inflation Index for F.Y. 2011-2012 ------------------------------------------- Cost Inflation Index for F.Y. 1981-82 on later F.Y.
3(35) Tax Saving On Capital Gains by Investment in Bonds
Exemption of long -term Capital Gains is possible on Investment
in certain Bonds - s. 54 EC
(i) Available to all tax payers
After -1-04-2006 : Investment for section 54 EC can be made only in Bonds of NHAI & REC with in 6 months.
Invest in 54EC Bonds by 30 th Sept. 2006, if gains accrue during the period 29/9/05 to 31/12/05 and by 31 st December 2006 if accruing from 1-1-06 to 30-6-06.
As per section 44AD if an Individual, HUF or Partnership Firm Carries on Real Estate Business with no accounts the Income on “Presumptive Basis” would be Calculated @ 8 % of the Total Turnover if the Turnover does not exceed Rs.60 lakhs. If exceeding Rs.60 lakhs then Tax Audit required.
The Earnest Money and Advance Forfeited by Vendor is a Capital Receipt says the Supreme Court of India in the case of Travancore Rubber & Tea Co Ltd . v. CIT (2000) 343 ITR 158 (SC); hence not liable to tax
- New thinking – Madras High Court in the case of K.R. Srinath v. ACIT (2004) 268 ITR 436
The Delhi High Court in the case of CIT v. Brinda Kumari (2002) 253 ITR 343 has held that where the amount spent for construction of new residential house is to be deducted from the amount of capital gain, the amount advanced to the builder for specific purpose of construction of flat in the new building would be treated as amount spent by the assessee on such construction
4(6). Expenditure Incurred for Vacating Hutment Dwellers
The compensation paid by the assessee for
eviction of hutment dwellers from its land was
allowed deduction while calculating the amount
of capital gain. It was held that the expenditure
so incurred by the assessee for vacating the land
actually amounted to incurring of an expenditure
for improvement of the asset. This was the view of
4(20). Payment to Corporation for Infringement of By-Laws .
Payment of Rs 4 Lakhs paid to Corporation for infringement of Bye Laws allowed
-“consideration for getting the Revised Plan sanctioned”
- Delhi High Court in the case of CIT v. Loke Nath & Co. (Construction) 147 ITR 624
4(21) Purchase / Construction of New Residential House to Save Capital Gains
Under a Joint Development Agreement, the assessee gave property to a Builder for putting up flats. Under the agreements eight flats were to be put up on the property and four flats were the share of the assessee. Held, that these four flats constituted “a Residential House “ as per Karnataka High Court in the case of CIT v. Smt. K.G. Rukminiamma 331 ITR 211.
4(22) Firms’ Immovable Property and Partners .
The whole concept of Partnership is to embark upon a joint venture and, for that purpose to bring in as Capital, money or even property including immovable property. Once that is done, whatever is brought in would cease to be the exclusive property of the person who brought it in - it would be the trading asset of the partnership in which all the partners would have interest proportion to their share in the business of Partnership – CIT v. Kedarnath Poddar & Co. 201 ITR 639
4(23) Interest on amount Borrowed for Purchase of Property
Interest on Loan paid for
purchasing property will
have to be included while
calculating the cost of
acquisition of the asset –CIT
v. Sri Hariram Hotels Pvt. Ltd.,
325 ITR 136
4(24) No Penalty for furnishing inaccurate Valuation on the basis of Valuation Officer’s Report.
Where the assessee enclosed Registered Valuation Report in support of Capital gain, it was not accepted by the Assessing Officer who made the Assessment of Capital Gains on the basis of District Valuation Officer’s Report, it was held that it did not amount to furnishing of inaccurate particulars and penalty under section 271(1)(c) not leviable – Dilip N. Shroff v. CIT 291 ITR 519 (sc).
4(25) Purchase of Flats which were combined to make one Residential Unit valid for claiming tax exemption under section 54
Karnataka High Court in the case of CIT V.D. Ananda Basappa 309 ITR 329 held that purchase of two flats which were combined to make one Residential unit would be eligible for granting exemption under section 54 of the Income-tax Act, 1961.
Transfer of Residential house & purchase of four flats in the same Residential Building -Assessee entitled to exemption u/s 54.
- CIT v. K.G. Rukminiamma 331 ITR 211.
4(26) Reinvestment of Capital Gains in New Floor of the same Building.
The benefit of tax exemption for investment in Residential House would be available in case the investment is made in new floor in the existing building owned by the assessee. – Addl. CIT v. Vidya Prakash Talwar 132 ITR 661. It was held that two units of the assessee comprising the house in South Extension, New Delhi could be occupied independently, hence these two residential units of the property should be considered separate.
4(27) Repurchase of House Sold and Availability of Exemption .
The seller of the House Property would be eligible to exemption if he decides to repurchase a part of the property which he had earlier sold. – CIT v. Phiroze H. Patel 112 CTR 254 – exemption would still be available in such cases as per section 54.
Good Judgment for Property Collaborations.
4(28) Sale Proceeds Invested in a Flat under Construction amounts to Construction
As per the decision of CIT v. Bharti C. Kothari 244 ITR 352 the entire purchase price paid by assessee within three years from the date of the sale of the flat would be treated as as amount invested in a flat which was under construction and tax benefit can be availed under section 54
4(29) Sale of Land & Building - Demolition of Building
Assessee sold property with land and building. Purchaser sought permission to demolish the super structure and therefore there was no value for the building and what remained was only land which was not depreciable asset, hence gain treated as Long-term Capital Gain and provision of s.50 not applicable – CIT v. Union Co (Motors Ltd. 283 ITR 445.
4(30) Purchase of four portions of property by four sale deeds and tax exemption.
Purchase of four portions of property by four sale deeds would be valid to save Capital Gains because properties constituted one single unit. Held, that execution of four different sale deeds in respect of four different portions of the property did not materially affect the nature of the transactions or the nature of the property acquired – CIT v. Sunita Aggarwal 284 ITR 20
4(31) Sale of Residential House and investment in new House, Possession received but Registration not completed.
In order to attract the application of section 54F, it is not necessary that the new house should be Registered in the name of the assessee. Section 54F speaks of purchase and Registration is not imperative – CIT v. Ajitsingh Khajanchi. 297 ITR 95.
4(32) Deduction of Expenses incurred in connection with transfer
Expenditure incurred on obtaining Probate, Travel expenses of Executors and expenditure incurred on evicting illegal tenants held to be expenditure incurred wholly and exclusively in connection with Transfer and hence deductible – June Perrett v. ITO 298 ITR 268
Where the assessee was in possession of Property under Agreement of sale entered in 1976, sale deed executed in July, 1986 and Registered on 26-9-1986, Property sold on 30-9-1986, the Capital Gain would be long-term Capital gain as the assessee held the property from 1976 - Madathil Brothers v. DCIT 301 ITR 345.
4(34) Income –tax Exemption under section 54F.
Where the assessee established investment of entire Capital gain in purchase of Land within the stipulated period but construction of the house was not completed, the assessee was entitled to exemption. Held, that in order to get the benefit under section 54F of the Act, the assessee need not complete the construction of the house and occupy it, it was enough if the assessee established the investment of the entire net consideration within the stipulated period – CIT v. Sardarmal Kothari & Others 302 ITR 286.
When parties enter into a family arrangement for rearranging shareholding of the members to avoid possible litigation among themselves, this does not amount to transfer and is not eligible to Capital Gains Tax – CIT v. Kay Arr Enterprises & Others 299 ITR 348.
Delhi High Court decision in the case of CIT v. B.K. Bhaumik 245 ITR 614 – The expression Adventure in the Nature of Trade relates to the existence of certain elements in the adventure which in law would invest it with the character of trade or business.
4(38) No payment of Stamp Duty for transfer, hence s.50C not applicable .
The guideline value is not conclusive proof. Section 50C is applicable in cases of payment of Stamp Duty for Transfer – Asst. CIT v. V.N. Meenakshi 319 ITR 262 (AT).