Immovable Property
  • Capital Gains
  • Capital Gain Computation
  • Capital gains tax exemptions on reinvestment
  • Tax exemption Certificate
  • Set-off of gains against losses
Immovable properties i.e. plot of land, residential flats or house, commercial  properties etc. are treated as Capital Assets u/s 2(14) of the Income-tax Act, 1961 (‘the Act’) and accordingly gains arising from the transfer of immovable property is chargeable to income tax.

Further, it must be noted that immovable property which is classified as Rural Agricultural land as per the provisions of the Act, is not treated as Capital asset and accordingly gains arising from the transfer of same is not chargeable to tax.

The Capital gains are segregated into long term capital gains and short term capital gains in the following manner :-

                                   
Period of Holding of immovable propertyType of Gain arising on transfer
For less than or equal to 36 monthsShort Term
For more than 36 monthsLong Term
Mode of Computation of Capital Gains in respect of transfer of Immovable property:

Section 48 of the Income-tax Act, 1961 provides for mode of computation of capital gains. This is explained in form of illustration as under:

Capital Gain Computation

                                                                                                                                                        
Full Value Consideration 9,50,000/-
Stamp Duty Valuation10,00,000/-
Sales consideration or Stamp Duty valuation as per Sec 50 C, whichever is higher 10,00,000/-
Less: Expenditure incurred wholly and exclusively In connection with such Transfer (50,000)
Net sales Consideration9,50,000/-
Short Term Capital Asset \ Long Term Capital Asset  
Less:Cost of Acquisition \  Indexed Cost of Acquisition (4,50,000)  
Less:Cost of Improvement \ Indexed Cost of Improvement (3,00,000)        (7,50,000)
Taxable Capital Gains  2,00,000
NRIs are entitled to claim exemption from the tax if they reinvest long term capital gains /net sale consideration into following assets.

                                                                                                                       
LONG TERM ASSET SOLDREINVESTMENT INCONDITIONSAMOUNT TO BE INVESTED
All long term capital    assetTax saving bond issued by
a. National Highways Authority of India
     
b. Rural Electrification Corporation Ltd ( REC)
1) Investment is to be made within Six months from the date of transfer of asset.
     
2) New asset is to be held for a period of 3 years.
     
3) You cannot borrow against security of these bonds
Amount equivalent to Capital Gains or Rs. 50 lakhs whichever is less.
Urban Agricultural land        An agricultural Land       There are many conditions, which shall be provided at request.Amount Equivalent to Capital Gains       
Any long term capital asset other than residential houseSingle residential house in India There are many conditions, which shall be provided at request.Amount equivalent to Net Sales consideration
Residential houseSingle residential house in India There are many conditions, which shall be provided at request.Amount equivalent to Capital Gains
Residential house or plot of landEquity share of new eligible Indian company There are many conditions, which shall be provided at request.Long Term Capital Gains in proportion of amount re-invested over Net Sales consideration

TDS provisions and tax liability on gains from transfer of Immovable property


Type of GainRate of TDSRate of Tax
Long Term20%* on amount of Sales Consideration20%* on amount of Capital Gains
Short Term30%* on amount of Sales ConsiderationSlab Rate* for amount of capital gains

* Plus applicable surcharge and cess
The rate prescribed for TDS from NRI’s Indian income is the maximum rate of tax at which relevant Income is taxable in India. However, in majority of the cases of NRIs, the actual tax liability is lower than the TDS. However, the higher deduction of tax so made is generally not claimed as refund by filing ROI. Whenever a person’s actual tax liability as per the provisions of the Act is lower than the TDS, he may apply for Tax Exemption Certificate (TEC) from the Indian Income Tax Department.

Considering the example given above where sales consideration was Rs.9,50,000/- and the amount of Capital Gain was Rs.2,00,000/-. In this case, tax is payable on Rs.2,00,000/- i.e. on the amount of capital gain at the specified rate, depending upon the nature of capital gain. However, while deducting tax at source, the payer may apply the rate of tax on Sales consideration and deduct the amount calculated in the said manner from Sales consideration. Accordingly, tax deducted by the payer would be higher than the amount of tax that shall be actually paid on the amount of capital gain.

In order to assist in above mentioned situation, the Act has provided procedure u/s 197 whereby an NRI can apply to his Jurisdictional Assessing Officer (in prescribed form) at the Income Tax Department to issue specific certificate authorizing the payer of income (who deducts tax at highest prescribed rate) to deduct tax at a lower rate or nil rate as the case may be. The NRI should estimate his income, tax liability and likely TDS and then apply for partial or complete TEC. The payer is mandatorily required to deduct tax in accordance with the TEC of the Assessing Officer. Such a certificate is binding on the payer.

Do note that if a person obtains TEC for any financial year, he is compulsorily liable to file the ROI in India for that year. We can assist NRI’s to obtain a TEC from the Income Tax Department.
The provisions of the Income-tax Act, 1961 to offset the Losses against the Gains in the following situation:-

  • Set off of gains against loss in case of sale on different dates in the same Financial Year.

    The Gains earned on transfer of capital assets should be set off against Losses incurred during the same financial year (i.e. during April – March) subject to the provisions of Income-tax Act,1961.

  • Carry Forward of Unabsorbed Capital Loss in subsequent year.

    If the loss cannot be set off or entirely be setoff in the same year, it is allowed to be carried forward to subsequent year provided return of income is filled within the prescribed time limit.