Income and capital gains tax on Real Estate income/gains

I would like to know how are taxes calculated on real estate income/gains for 2017-2018 year?
Are the following correct?

a. Deduction of 30% or actual expenses (property taxes, management fees, repairs etc from rental income, whichever is lower

b. Deduction of Rs 1.5 lacs towards repayment of principal of the home loan - 80C

c. Deduction of interest paid towards home loan - no limit - Section 24

d. Long term capital gains tax of 20% for rental properties held for 2 or more years.


Asked 1 month ago in Income Tax from United States
Hi

a , b and c above are n respect of taxation of rental income from properties.

# no limit for interest deduction if the property is let out; Rs.200000 limit if self occupied.

d above applies when the property is sold. For LTCG, tax exemptions are available under section 54 when reinvestment of the same consideration is made.
Lakshita Bhandari
CA, Mumbai
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Yes.

Yes. This can be done.
Lakshita Bhandari
CA, Mumbai
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Hi,

Please find below the corrected statements:

a. Deduction of 30% is allowed irrespective of actual expenses. Municipal taxes paid are also allowed over and above 30%.

b.  correct.

c. Deduction of interest paid towards home loan - no limit. However, limit of 2 lacs is applicable in case of self occupied property. 

d. Long term capital gains tax of 20% for all immovable assets held for 2 or more years.

Please feel free to call/ revert in case you need additional clarity/ guidance.

Thanks and regards
Abhishek Dugar
CA CS B.Com
Abhishek Dugar
CA, Mumbai
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A long term Capital Loss can be set off only against the profits of any other long term capital gains, but short term capital loss can be set off against both short term and long term capital gains.
House property head loss can be set off against any other income.

For carry forward of capital losses, file the Income tax returns before due date of filing.
Lakshita Bhandari
CA, Mumbai
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Hi,

To answer your questions:

1. The deduction of 30% is irrespective of actual expenses. However, the payment of property / municipal tax is over and above the deduction of 30%.

2. Yes, your understanding is correct. The amount of repayment of principal of home loan or Rs. 150,000, whichever is lower will be allowed as a deduction  under section 80C of the Income-tax Act, 1961 ('Act').

3. The deduction of interest depends upon the nature of property. If it is self-occupied, then the deduction of interest will be the actual repayment of interest, subject to a maximum of Rs. 200,000. If the property is rented out, then there is no limit on the interest deduction.
Further, there is also a benefit of interest deduction of interest paid before the acquisition of property. This benefit accrues only after you get possession of the property. You may want to take that into consideration, if need be.

4. Yes, long term capital gain will be taxed at the rate of 20%. The sale consideration will be reduced by the indexed cost of acquisition, and the resultant profit / gain will be taxed at the rate of 20%. 
For a property to be considered as a long term asset, the immovable property has to be held for a minimum of 2 years.
If you invest the amount of capital gain in a new residential property, then the gain will be exempt under section 54 of the Act. However, if you invest an amount lower than the capital gain, then the differential will be taxed at the rate of 20%. 
You can club capital gain arising from multiple residential properties and invest in one residential property. Ensure that the total capital gains arising from all the properties is equal or less than the amount of new property.

Regarding your question "Are the exemptions considered for each property separately? For example, can
i use my net income from one property against loss in income from the 2nd property?". Could you please elaborate?
Is the net income you are referring to is capital gain or income from house property (i.e. house rented out or lying vacant)

Regards,
Keerthiga Padmanabhan
M.Com., CA, LL.B
Keerthiga Padmanabhan
CA, Greater Mumbai
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Just to add on to another aspect, if you are a resident of United States of America, as per their laws, you may have to disclose the gain arising out of India, in your tax returns filed there. In case you have to, and a tax arises on such capital gain in USA, then you can claim credit of the taxes paid in India. This is as per the Double Taxation Avoidance Agreement between India and USA.

Trust this clarifies.
Keerthiga Padmanabhan
CA, Greater Mumbai
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Yes these exmptions are considered separately except the exemption u/s 80C.

Yes, you can offset the gain from one property with loss from another property.

Please feel free to call revert in case you need more clarity.

Thanks and regards
Abhishek Dugar
CA CS B.Com
Abhishek Dugar
CA, Mumbai
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Hi,

You can set off loss from one property against profit from another property.

Also, regarding investing in one property by utilizing Capital Gains from 4 different properties, answer is Yes. You can utilize Section 54 Benefit. However, Section 54 applies only if the property sold was used for residential purposes
Pradeep Bhat
CA, Bengaluru
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