Budget 2019 made a number of changes for real estate investors. The major changes are as follows:
1. Section 54
Section 54 grants a deduction on the purchase of a house property by the seller of a residential house property incurring long term capital gains. Long Term Capital Gains (LTCG) apply when the house property in question is held for at least 2 years before the sale. In other cases, the profits/gains made on the sale of house property are taxed as Short Term Capital Gains (STCG) at the applicable slab rate of the taxpayer.
The purchase of the new house has to be made up to 1 year before or up to 2 years after the house property is sold. If you are constructing a new house, the construction must be completed within 3 years of the sale of the old house property.
If the property is not purchased before the date of return filing, the money received should be moved to a specially designated capital gains account in a bank. It can be spent from this account for the purchase of the concerned house property.
The deduction under this section is reversed if the new house property is sold within 3 years of purchase.
Earlier the money could only be used to buy 1 house property to get the benefit of this section. Budget 2019 has allowed investors to invest the sale proceeds in up to 2 house properties.
2. Section 194 I
Section 194 I requires taxpayers such as companies, firms, LLPs etc to deduct TDS on rent if such rent exceeds Rs 1.8 lakh per annum. It does not apply to individuals.
Budget 2019 has increased the exemption for TDS on rent from Rs 1.8 lakh to Rs 2.4 lakh.
3. Section 23
Section 23 of the Income Tax Act imposes a tax on deemed rent on vacant houses. In other words, if a taxpayer owns multiple houses which are lying vacant, a certain amount rent will be assumed and tax imposed on the same. Section 23 discourages taxpayers from keeping their houses vacant.
The assumed or ‘deemed’ rent is rent which the owner may be reasonably expected to have received from the house property. Note that if the property is let out at a higher rate than the deemed rent, then tax will be charged on the actual rent paid. Also, property tax paid to municipal authorities is deducted from the liability to pay Income Tax and 30% of the deemed rent computed is exempt from tax as ‘standard deduction’. This standard deduction is given in lieu of expenses incurred in maintaining the property.
Up to 1 vacant house was earlier exempt from this deemed rent provision. Budget 2019 has increased this limit to 2 vacant houses.