Section 54 and Section 54F of the Income Tax Act in India offer tax benefits to individuals who sell a long-term capital asset and invest the sale proceeds in a residential property.
The Indian government has proposed a change in the tax laws related to the set-off of capital gains from the sale of residential units or any other long-term assets. Previously, there was no cap on capital gains that could be set off through investment in another residential unit.
However, the recent announcement of a capital gains deduction limit of 10 crore Rupees for property transactions is expected to impact luxury property deals. This limit may reduce the incentives for high-net-worth individuals to invest in luxury properties, potentially leading to a slowdown in this real estate market segment.
However, it should be noted that the full impact of this policy change will depend on several factors, including the overall economic situation and the real estate market demand.
Despite the abundance of redevelopment projects, particularly in prime areas like South Delhi, any transfer of the immovable asset to a builder as part of a redevelopment project would be considered a transfer under tax regulations.
As a result, the individual who is transferring the property would be subject to capital gains tax on the sale, unless they meet the conditions outlined in Sections 54 and 54F of the Income Tax Act. The recent budget proposal to limit the deduction from capital gains on investment in residential property to 10 crore Rupees under these sections may impact individuals who are considering transferring their properties for redevelopment purposes.
Ready Reckoner Values
The “ready reckoner” values, which are the government-determined values used as a reference for calculating stamp duty and registration charges on real estate transactions, in Delhi are not in line with current market prices.
Certain colonies in South Delhi often reflect higher values than the actual transaction values, even though there is a 10% allowance provided. This discrepancy may result in individuals paying higher taxes on their real estate transactions and may also impact the real estate market in these colonies.
South Delhi Prime believes that the luxury property market could see an increase in deals over the next two months, before the recently announced limit on the deduction from capital gains on investment in residential property, which is expected to be implemented starting April 1st. This increase in activity could be due to individuals trying to take advantage of the current tax benefits before they are reduced.
However, the actual impact of this change on the real estate market remains to be seen.