Tag Archives: Indian real estate laws

Getting around India’s constantly changing real estate laws

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India’s real estate market has a long history of being associated with complexity and opportunity. Stakeholders, from large international investors to individual homebuyers, have seen the regulatory framework change over time to strike a balance between sustainable development and rapid growth. The real estate industry’s legislative environment is currently changing, indicating a move in the right direction toward efficiency, accountability, and transparency. 

By 2024, the real estate sector will have a value of Rs. 65,000 crores, and by 2025, it will contribute 13% of the country’s GDP. As a result, the regulatory framework will evolve to encourage the growth of this actor. We must cope with this changing environment by recognizing and responding to these progressive developments revolutionizing the industry.   

The Start of Reforms in Regulations 

A turning point for the industry was the introduction of the Real Estate (Regulation and Development) Act of 2016 (RERA). An essential first step in revitalizing the real estate sector has been RERA, which attempts to protect buyers and increase developers’ accountability. The Act provides a systematic approach to resolving disputes by guaranteeing the timely completion of projects and establishing a regulatory body to oversee transactions. 

The Benami Transactions (Prohibition) Amendment Act amendment, which has been crucial in reducing illicit transactions and enhancing transparency, is another significant achievement. It fosters an environment of efficiency and trust, along with the government’s push to digitize municipal and panchayat papers and land records through the Digital India Land Records Modernization Programme (DILRMP). Legislative trends indicate that the liberalization of the Indian economy will continue to be prioritized, with a renewed emphasis on transparent real estate development and affordable housing initiatives. 

Inventiveness in Adherence 

We now reside in a more convenient and accessible era thanks to the digitization of compliance procedures. The red tape that formerly limited the industry’s agility has been reduced thanks to online portals for RERA-mandated project registration, complaint filing, and project progress reports. Significant improvements have occurred to the ease of doing business, boosting investor confidence domestically and internationally. Furthermore, buyers can now make better-informed decisions about the projects they invest in thanks to the transparency that RERA has brought about. 

Financial Regulations: A Step in the Right Direction 

The Goods and Services Tax (GST) has simplified the structure of real estate taxes, thus reinforcing financial discipline. Furthermore, the Pradhan Mantri Awas Yojana (PMAY) is bolstering the affordable housing market, drawing in investments and guaranteeing that the populace can realize their dream of owning a home. Affordable housing saw a significant boost with the announcement during the Union Budget 2023-24 of a commitment of Rs 79,000 crore (US $ 9.64 billion) for the PM Awas Yojana. 

By lowering lending standards for home loans and updating the sector’s risk weights, the Reserve Bank of India (RBI) has also contributed positively. It has encouraged banks to lend more money to developers and homebuyers, increasing the sector’s liquidity. 

Furthermore, India’s real estate market has historically been strongly protected and heavily shielded from foreign investment by stringent laws that only allow foreign companies to make local partnerships or joint venture investments, emphasizing particular project types like townships. But under the ‘Make in India’ initiative, 100% foreign direct investment (FDI) is now permitted for large-scale infrastructure and real estate developments, including townships, industrial parks, shopping centers, and more, thanks to reforms begun in 2005 and further enhanced in 2016. This method keeps smaller-scale real estate ventures for Indian businesses safe from being overtaken by foreign corporations by strategically directing foreign investments toward large, capital-intensive projects. 

These regulatory policies do have a positive effect; this is not just theory. It is a reality that is beginning to take shape and is already providing noticeable advantages. 

Promoting Sustainable Development 

The government’s emphasis on energy transition and reaching Net Zero targets is India’s real estate industry toward a sustainable revolution. The introduction of the Green Rating for Integrated Habitat Assessment (GRIHA) is driving the creation of energy and environmental efficiency. This change indicates a clear path toward environmentally, socially, and economically beneficial sustainable practices. An additional ambitious project is the Smart Cities Mission, which seeks to integrate urban development and sustainability into a model that could emulate. 

India’s real estate laws are evolving, which indicates potential for future development and improvement. Cooperation amongst regulators, consumers, developers, and the government highlights a dedication to a sector that sustains sustainability and makes a substantial economic contribution. This adaptable governance structure satisfies both the demands of the general public and market dynamics. Maintaining and strengthening these rules is essential to creating an open, effective, and equitable ecosystem, which is necessary for a robust real estate market and economy. Despite its complexity, this shifting landscape creates opportunities for a more stable and reliable real estate sector, which is critical to India’s continued economic development.  

Land Sale Capital Gains Tax

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Any profit or gain from selling a capital asset is known as capital gain. Houses, land, stocks, mutual funds, jewelry, and trademarks are all capital assets. Because the gain/profit is considered income, you must pay tax on that amount in the same year you transferred the capital asset. 

As a taxpayer, you must pay taxes on your earnings during the fiscal year. Similarly, you also have to pay taxes on your capital gains. 

Because land is a capital asset, capital gains from its sale are taxed. Here’s a detailed explanation of capital gains tax and how to calculate it. 

Capital Gains Tax on Land Sales 

You must pay capital gains tax on a home or land sale. Capital gains tax falls into two types: short-term capital gains (STCG) for properties held for less than 36 months and long-term capital gains (LTCG) for properties kept for more than 36 months.  

In the case of STCG, the profits generated from the sale of land belong in the owner’s taxable income, and the individual must pay taxes based on the income tax slab they fall into that particular fiscal year. The current LTCG tax rate is 20%. 

How to Count Capital Gain on Land Sale? 

Here’s how to figure out the capital gains from selling a house: 

Capital Gain Tax (STCG) 

Deduct the acquisition cost, improvement cost(if any), and sale-related expenses from the sale price if you sell the land within 36 months of purchasing it. It will be your STCG. 

Let’s take a look at an example- 

Mr. Ansari purchased land in 2015. He paid Rs. ten lakh for it. Mr. Ansari bought land in 2015. He paid Rs. 10 lakh for it. In 2016, he sold the land for Rs. 15 lakh. In this instance, Mr. Ansari’s total income will rise by Rs.5 lakh. Tax will be lived based on his tax bracket. Calculating the STCG tax is easier. The profit from the sale of land is part of the total income.  

LTCG – Capital Gains Tax 

In LTCG, you can deduct the indexed acquisition and improvement costs from the sale price. It helps to reduce your capital gains as the cost of acquisition or improvement rises.  

When calculating LTCG, the cost inflation index (CII) is critical. Every year, the government releases this index. CII is an integral factor in determining the indexed cost of acquisition and improvement. 

Cost Inflation Index = Index for the fiscal year of transfer/ Index for the fiscal year of acquisition. 

Are Deductions for Reducing Capital Gains Tax Available? 

Yes, the IT Act provides a few options to help landowners reduce their capital gains tax liability. Some of the most popular ones are as follows- 

Section 54F of Income Tax 

Under Section 54F, there is a 100% deduction on the capital gains tax if the entire amount is gained from selling land for purchasing or constructing a house. However, this provision is subject to certain conditions and limitations. But note that there are some conditions and limitations to this provision. 

Income Tax Section 54EC 

The LTCG from the land sale is deductible under Section 54EC when invested in capital gains bonds such as REC (Rural Electrification Corporation) or NHAI (National Highway Authority of India). Furthermore, if you don’t use these sections of the IT Act, you can deposit your capital gains in a bank. Such capital gains deposits are tax deductible under the Capital Gains Account Scheme. 

Tax Advice for House Sellers 

  • Generally, the exemption for a new residential property is proportional to its total sale price. Investing the remaining amount within six months is allowed under Section 54EC. 
  • The exemption will also be available if the builder of the new residential property does not hand over the house to the taxpayer within three years of purchase. 
  • You can calculate the capital gains by using the stamp duty and valuation by the registration authority. 
  • If the seller cannot reinvest the gains in bonds or houses before filing their tax return for the year in which the sale occurred, they can deposit the gains in the Capital Gains Account Scheme to be eligible for the deduction.