Real estate has remained one of the most favoured investment options among investors. Reason for this is the fact that in the first decade of the 21st Century, real estate has given big returns in relatively less time. However, it has been found that people investing in the real estate market are slightly ignorant about the taxes involved, especially the Long Term Capital Gain (LTCG) tax and the relaxations that government gives to a real estate investor. Tax and investment experts are of the opinion that being ignorant to this tax may land the investor in trouble.
Speaking on the matter, Balwant Jain, a Mumbai-based tax and investment expert said that the LTCG is applicable on both under construction inventories and ready to shift units, however, rules for applying LTCG on these two types of realty properties are different.
Elaborating upon the LTCG rules on under construction and ready to shift units Balwant Jain said, “If a real estate investor buys an under construction residential property, then the LTCG tax becomes applicable when he or she decides to sell out the property after three years of holding. While in case of ready to move property, the LTCG tax will be applicable if he or she decides to sell it out after two years of possession.”
On ways to avoid LTCG while filing Income Tax Return (ITR) Kartik Jhaveri, Director — Wealth Management at Transcent Consultants said, “A real estate investor can keep the money into the capital gain account after selling out his or her property. This period can be up to three years. During this period, one can re-invest this money into another property and avoid LTCG tax. During these three years, the investor would get interest on his or her money as per the rate is given by the bank to its saving account holders. However, to maximise one’s gain, an investor can buy capital gain bond up to Rs 50 lakh within six months of the property sale.”
Explaining other benefits that a real estate investor can avail off Jitendra Solanki, a SEBI registered investment expert said, “While accounting one’s LTCG tax on real estate property, one needs to deduct the brokerage being paid during the buy and sale of the property. Apart from that, money that one spends on repair and maintenance of the property would also get deducted. However, for availing these deductions from the LTCG tax net, one needs to have proper bills being raised against his or her name with proper heads being mentioned.”