The Budget brings some cheer to individuals who own immovable property and wish to monetise the value of the property. In metros it is a common practice for property owners to enter into joint development agreement with developers for redevelopment of their property for monetary and non-monetary considerations.
Joint development of property
Earlier, tax authorities sought to tax capital gains on such transfer as soon as a joint development agreement was executed between property owner and developer, irrespective of the fact that the value or price of such transfer was normally received by individual property owner only after complete redevelopment of the property and sale of housing units in redeveloped property.
Now, the government has proposed that such capital gains shall be taxable only in the year when redevelopment is completed and completion certificate is received.
Long-term capital gains tax
The period of holding of immovable property to qualify for a lower rate of tax applicable for long term capital gains has been reduced from three years to two years. This will reduce the tax burden on individuals planning to realise the value of their immovable property. While some relief has been granted to individuals planning to sell or realise value of their property, some other amendments proposed by the government increases tax burden on individuals earning rental income from immovable property.
Deduction on interest paid for property let out
Earlier, there was no limit on deduction claimed by individuals for interest amount paid by them on home loans taken for properties let out and earning rental income from it. However, there was a limit of R2 lakh for deduction claimed for interest on home loan taken for self-occupied house property. Bringing both type of investments at par, the government has proposed that deduction for interest on home loans taken for properties let out will also be limited to R 2lakh in any financial year.
TDS on rent above Rs 50,000
In respect of houses taken on rent by individuals, where monthly rent of R50,000 or more is paid, mandatory deduction of TDS at the rate of 5% has been proposed, subject to maximum of last month’s rent. These changes are intended to increase tax collection on rental income earned by individuals.
Relief to developers
The government has proposed to relax norms for affordable housing projects eligible for tax holiday. Developers will not be liable to any tax on notional rental income in respect of unsold inventory up to one year from getting completion certificate in respect of their housing projects. Also, infrastructure status has been granted to affordable housing, which will reduce the cost of loans and benefit individual house buyers.
The writer is director, Nangia & Co.