Tax saving tips: Invest in real estate and save tax on LTCG

Investments in real estate are borne out of savings made out several years of earnings. These investments have both monetary value and emotional value for investors. Individuals buy and sell real estate to reinvest in upcoming real estate projects, to meet growing family needs, to move to another location of choice etc. Since real estate investment involves a large amount of money, the sale of property results in large gains. Tax may have to be paid on these gains unless they have been invested. Let’s find out how to save tax on sale of a property.
Taxpayers can save the taxes on the gains by availing the benefit of tax exemptions allowed under the Indian tax laws. The law allows a taxpayer to invest in real estate and avail the benefit of exemptions on taxable gains realised on the sale of assets or real estate.
A.Tax saving exemptions:
I.Investment in real estate upon exit from a real estate property
Individuals who have earned gains upon exit of a residential house and wish to reinvest in another residential house can avail of an exemption from taxation of the capital gains.
For example:
Mr A sells his residential house on 5th April 2018 for Rs 50,00,000. Mr A had bought the house for Rs 20,00,000 on 25th March 2013. With the proceeds of the house, Mr A purchases a new residential house for Rs 60,00,000. The calculation of the capital gains and the exemption would be as below:
tax-table To claim this exemption the property which is sold should have held by a taxpayer for more than 2 years.
The above exemption is now extended w.e.f 1 April 2019 to investment in 2 residential properties (once in a lifetime benefit), the one condition being that the gains are not above 2 crore rupees.
II.Investment in real estate upon the sale of any other asset
Individuals who have earned gains upon sale of any other asset and desire to invest in a residential house can avail an exemption from taxation of the capital gains. Other assets would include land, gold etc.
Illustratively:
Mr B sells a plot of land on 5th April 2018 for Rs 80,00,000. Mr B had bought the land for Rs 40,00,000 on 25th March 2013. With the proceeds of the land, Mr B purchases a new residential house for Rs 60,00,000. The calculation of the capital gains and the exemption would be as below:

LTCG-table
To claim this exemption the property which is sold, should have held by a taxpayer for more than 2 years.
B.Other conditions attached to the exemptions mentioned above:
Period available for investment:
A taxpayer can acquire a residential house within a span of 2 years. A residential property which has been purchased a year before the sale would also qualify for an exemption. In the case of under construction properties, taxpayers have up to 3 years to complete the construction.
Deposit in Capital gains account scheme:
Taxpayers who are unable to invest the proceeds/capital gains have the benefit of depositing the amount of gain/sale consideration in a Capital gains account scheme. The deposits have to be made with any branch of a public sector bank on or before the due date for furnishing of the income tax return of the year in which property was sold.
Taxation of the unutilised amount in the Capital gains account scheme:
Taxpayers have to utilise the amounts deposited in the Capital gains account scheme. If they fail to utilize this amount within the specified time, they will have to pay tax on the gains which were earlier exempted at the end of 3 years from the date of sale of the property/asset.

Rs 2.50-trn thermal power projects stressed, need urgent remedy: Report

Investments worth over Rs 2.50 trillion in thermal power projects (based on domestic coal, imported coal and gas) are facing stress, and immediate remedial measures are needed to ensure that they are revived in a time-bound manner, as per a report.
The ASSOCHAM-Grant Thornton joint study noted that the country's power sector has been one of the highly stressed sectors in recent times, with loans worth approximately Rs 1 trillion having turned bad or been recast.

"As per the recent estimates, around 66,000 Mw capacity is facing various degrees of financial stress, including 54,800 Mw of coal-based power, 6,830 Mw of gas-based power and 4,570 Mw of hydropower with the lenders having an exposure of around Rs 3 lakh crore (Rs 3 trillion) to these assets, which is alarming, to say the least," noted the study titled 'Stressed assets in the Indian thermal power sector'.
Non-availability of regular fuel supply arrangements, lack of Power Purchase Agreements (PPAs), inability of promoters to invest equity and working capital, and regulatory and contractual issues are some of the major challenges faced by thermal power projects, it said.
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The report added that there is no universal solution for these ailing power assets and a mixed multi-pronged strategy needs to be adopted instead of a straight-jacketed approach.
"This has to be done as there are not enough takers for all of these stressed assets and any unthoughtful action may result in huge credit recovery losses for the banks/FIs (financial institutions)," it added.
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While the Insolvency and Bankruptcy Code (IBC) has already been amended four times since its enactment in 2016, the government is willing to amend it further to make it stronger and effective. "This is considered imperative to provide an effective solution to thermal power projects," the report noted.
Further, an effective resolution in a time-bound manner is warranted by improving the macro environment governing the power sector, it said.
This would involve augmenting coal supplies under the Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI) and medium-term/short-term power procurement by discoms to alleviate the sub-optimal plant load factors (PLFs), it stated.
It would also require improvement in operations, besides National Investment and Infrastructure Fund (NIIF)/NTPC led resolutions, the study added.

Investments in P-notes surge to 6-month high of over Rs 1.5 trillion in Dec

Investments in domestic capital markets through participatory notes (P-notes) surged to a six-month high of over Rs 1.5 trillion (Rs 1.5 lakh crore) at December-end despite stringent norms put in place by regulator Sebi to check their misuse.
P-notes are issued by registered foreign portfolio investors to overseas investors who wish to be part of Indian stock markets without registering themselves directly. They, however, need to go through a proper due diligence process.
According to Sebi data, the total value of P-note investments in Indian markets — equity, debt, and derivatives — increased to Rs 1.52 trillion (Rs 1,52,243 crore) at December-end from Rs 1.28 trillion (Rs 1,28,639 crore) at the end of November.
This is the highest level since June when the cumulative value of such investments stood at Rs 1.65 trillion (Rs 1.65 lakh crore).
Of the total investments in November, P-note holdings in equities were at Rs 1.2 trillion (Rs 1.2 lakh crore) and the remaining in debt and derivatives markets.
Besides, the quantum of FPI investments via P-notes surged to 4.6 per cent during the period under review from 4 per cent in the preceding month.
Prior to the recent surge, P-note investments were on a decline since June and hit an over eight-year low in September.
However, these investments slightly rose in October but fell in November.
These declines could be attributed to several measures taken by markets regulator Sebi to stop the misuse of the controversy-ridden participatory notes.
In July, Sebi notified stricter P-notes norms stipulating a fee of $1,000 that would be levied on each instrument to check any misuse for channelising black money.
Also, Sebi prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes.
The move was a follow-through of Sebi's board approval of a relevant proposal in June. These measures were an outcome of a slew of other steps taken by the regulator in the recent past.
In April, Sebi had barred resident Indians, NRIs and entities owned by them from making the investment through P- notes. The decision was part of efforts to strengthen the regulatory framework for P-notes, which have been long seen as being possibly misused for routing black money from abroad.