INDIA Law and Practice Contributed by: Rishabh Shroff, Kunal Savani and Chirag Shah, Cyril Amarchand Mangaldas
Income From House Property The annual value of the property, determined in the prescribed manner, is taxed in the hands of the indi - vidual taxpayer at the applicable slab rates. Typically, it is not the rent recovered from a property (unless that is higher) which is subject to tax under this kind of income, but it is the income yielding capacity of the property which is subject to tax (ie, the annual value of the property), subject to certain conditions. For the purpose of computing such income, self- occupied property and property utilised for the pur - poses of carrying on the business or profession of the owner, taxable in India, are excluded. Gains From Disposal of Real Estate Assets Gains arising on sale of property held as capital assets, would be subject to capital gains tax in India. Capital gains tax implications can be summed up as follows. • If the asset (immovable property) has a short-term holding period (ie, two years or less), then the applicable tax rate (excluding surcharge and cess) ranges up to 30%. • If the asset has a long-term holding period (ie, more than two years), then the applicable tax rate (excluding surcharge and cess) is 12.5%. Where the real estate assets are held as stock-in- trade, gains arising from disposal of such assets would be subject to tax in the hands of the taxpayer, at the applicable slab rates. Apart from tax on transfer of property, individuals are required to pay stamp duty on the instruments of transfer. The stamp duty rate can be fixed or vari - able (ad valorem), based on the value and location of the underlying property or asset forming the subject matter of the transaction. Stamp taxes on transfer of real estate are frequently significant; the rates depend on the location of the property, as this tax is levied at the state level. Several states, such as Maharashtra, Karnataka and Rajasthan, provide lower stamp rates for intra-relative transfers. 1.5 Stability of Tax Laws As previously discussed, there is no estate tax cur - rently being levied in India.
(c) brother or sister of the spouse of the individual (or their spouse); (d) brother or sister of either of the parents of the individual (or their spouse); (e) any lineal ascendant or descendant of the indi - vidual (or their spouse); and (f) any lineal ascendant or descendant of the spouse of the individual (or their spouse); and • in the case of an HUF, any member thereof. 1.3 Income Tax Planning There are no tax planning tools available for stepping up of capital assets to their fair market value. Under the provisions of the ITA, a transfer of a capital asset pursuant to inheritance or Will is exempt from capital gains tax. Hence any capital asset received pursuant to inheritance or Will shall be tax exempt. Further, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired the said asset. For the purpose of computing the period of holding, the period shall be calculated from the date of acquisition by the previous owner from whom such property is received. As discussed in 1.1 Tax Regimes , non-residents pay tax only on India-sourced income, hence they may set up trusts or alternative investment funds (AIFs) or other tax planning vehicles depending on their requirements in order to defer their income tax liabili - ties. However, any such tax planning vehicle would have to be analysed separately on facts, to determine if they constitute a place of effective management in India or are subject to general anti-avoidance rules (GAAR). 1.4 Taxation of Real Estate Owned by Non- Residents Regarding real estate assets, the ITA seeks to tax (i) the annual value of the real estate assets, determined in a prescribed manner, under the heading of “income from house property”; and (ii) gains arising from dis - posal of such assets, under the heading of “profits and gains from business or profession” or “capital gains”, depending on whether the assets are held as capital assets or stock-in trade.
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