Budget may offer capital gains tax relief to home buyers, venture funds

Finance minister Arun Jaitley is expected to provide some cheer to home-buyers by giving capital gains tax concessions to under-construction property in the upcoming annual budget to be presented on 29 February.

The ministry of urban development is reported to have recommended to the finance ministry providing capital gains tax relief – both long and short-term - for under-construction property.

The upcoming union budget will also address the anomaly of venture capital funds in unlisted companies attracting a long-term capital gains of 20 per cent compared with nil for investment in listed equities.

The finance ministry, which has already pledged to ease regulations to encourage start-up businesses, on Saturday also indicated lowering long-term capital gains tax for new ventures in the budget for 2016-17.

If the finance ministry accepts the recommendations of the urban development ministry, it will be a huge relief to lakhs of home buyers across the country who have to bear the double burden of house rent and high EMIs on home loans.

At an interactive meeting in January, financial services secretary Hasmukh Adhia had said the budget will address the anomaly of venture capital funds in unlisted companies attracting a long-term capital gains of 20 per cent compared with nil for investment in listed equities.

Sale of immovable property located in India attracts capital gains tax. If the property is sold after three years from the date of purchase, long-term capital gains tax is payable at 20 per cent (plus applicable surcharge and education cess). Long-term capital gain is calculated as the difference between sale value and indexed cost of purchase, ie, the cost of purchase adjusted to inflation.

If the proceeds were to be re-invested in India (before filing of income-tax return), long-term capital gains can be claimed as tax exempt. Eligible products for re-investment include specified bonds and residential house (to be bought within two years or constructed within three years of transfer).