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Welcome To New Seminar. Tax Planning of Real Estate AND Money Making Ideas in Real Estate

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    1. Welcome To New Seminar Tax Planning of Real Estate AND Money Making Ideas in Real Estate For the first time in India a real power packed seminar on Tax planning of Real Estate as also unique innovative ideas in Real Estate for making your money grow. Strongly recommended for all those who are in the real estate sector as also for all those who would like to join real estate sector as a business or as investment. By SUBHASH LAKHOTIA Tax Guru: CNBC Awaaz Director: Lakhotia College of Taxation & Management Director: R.N. Lakhotia & Associates LLP

    2. Seminar onTax Planning of Real Estate & Money Making Ideas in Real Estate by Subhash Lakhotia Important topics to be covered in the Seminar: 1. Real practical objectives of Tax Planning of Real Estate. 2. Real Life tax planning ideas and practical tax saving examples for Investment in Real Estate. 3. Important pointers in Buying, Selling & Renting Properties including Capital Gains tax saving vistas. 4. Important Judicial decisions which help the process of Tax Planning in the wonderland f Real Estate. 5. Money Making Ideas in Real Estate. 6. Utilising Limited Liability Partnership Firms for your Real Estate Investments. 7. The new concept of “Real Estate Business Oxygen Company” for making money in Real Estate. 8. Investment in India by Non Resident Indians. 9. Miscellaneous aspects of Tax Planning of Real Estate Unlimited Questions & Answers. Lakhotia College of Taxation & Management S-228, Greater Kailash Part-2, New Delhi-110 048 Phone : 011-29215434, 29215420, 29217768, 9810001665 E-mail : slakhotia@satyam.net.in & thelakhotia@gmail.com; lakhotia49@gmail.com

    3. 1. Real Practical Objectives of Tax Planning of Real Estate 1. To achieve best results in Property Buying , Selling & Renting. 2.To achieve Optimum tax advantages of Tax benefits and gains by making Investment in Real Estate. 3.To encourage cash rich people to be a part of Real Estate sector. 4. To debate and analyse Judicial thinking for tax benefit and relief. 5. To think and meditate on Money Making Ideas in Real Estate.

    4. 2(1) Real Life Tax Planning Ideas and practical tax saving examples for Investment in Real Estate Have faith in the dictum of Walt Disney If you can… Dream it You can, Do it …

    5. 2(2) Real Estate Planning Ideas and practical saving examples for Investment in Real Estate Think Boldly : Yes, I Can Yes, I Will

    6. 2(3)Expand the horizons of Tax Entities in your family for Tax Planning of Real Estate. • Jot down on a piece of paper the various tax entities that are available under the Income-tax Law. • Compare with Tax entities existing in your group right now. • Now proceed to think of “New Tax Entities” which can be a part of your growth story.

    7. 2(4) Expanding horizons of new Tax Entities in your family. • Find out whether all family members are having a separate Income-tax File. • Does your spouse have a separate tax entity. • If not what care to take. • The importantce of “Technical & Professional Qualification” of your spouse. • Building brick by brick, the tax entity of spouse • Tax advice to young couples to be – before marriage, at marriage and after marriage. • The Cross & Transfers and impact of Real Estate Transactions.

    8. 2(5) Expanding horizons of new Tax Entities in your family – contd. • It is time to take care of your major children for your Tax Planning. • The sons and daughters in the family who are 18 plus. • Transfer of liquid money to major children. • Aspects connected with Real Estate transfer through gift to major children.

    9. 2(6) Expanding horizons of new Tax Entities in your family – contd. • It is time not to ignore your Parents and your-in-laws to reach out for best fruits of your Real Estate Investment. • If not done till now, just start promptly a separate tax entity in their names. • Think of investing in Real Estate in their names. • Plan their Real Estate succession through Will & Gifts.

    10. 2(7) Expanding horizons of new Tax Entities in your family – contd. 5. Think of Real Estate Investments in your minor children and grand children’s name. • Plan tax entities of Minors with no Clubbing of Income if out of their earned income. • Plan through 100% specific beneficiary trust for minors. • Plan to have fixed Rental Income for minor children. • Specific Beneficiary Trust for safety and security of your dear daughter.

    11. 2(8) Expanding horizons of new Tax Entities in your family – contd. 6. Have you planned a tax entity in the name of your Hindu Undivided Family (HUF) • HUF is a separate tax entity with basic Income tax exemption of Rs.1,80,000. • HUF enjoys separate tax deduction for Interest on Residential house property and Repayment of Housing Loans. • HUF possible even today. • HUF even without children. • HUF full Partition & Tax benefits in Real Estate.

    12. 2(9)Expanding horizons of new Tax Entities in your family – contd. 7. Other Tax Entities for your Real Estate Investment • A Tax entity in the form of AJP = Artificial Juridical Person. • A Tax entity in the form of Partnership Firm, Limited Liability Partnership, Private Limited Company or Public Limited listed company. • A Tax entity in the form of an AOP. • A Tax entity as a “Discretionary Trust” with or without will for investment in Real Estate.

    13. 3(1) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. • Important Points in “Buying” Real Estate • Think of the name in which to buy Property. • Property can be purchased in single or joint names. • Meditate first on the objectives of buying new property and then buy out. • Always lay special emphasis on “Location” only. • It makes a sense to pay little more for “Preferred Location Charges” (PLC) in long run. • Consider loan as preferred theme of making investments in Real Estate specially residential property for self use.

    14. 3(2) Important points in Buying,Selling & Renting properties including Capital Gains Tax saving vistas. ( Important Points in “Selling” Real Estate • From tax angle always sell Real Estate after holding it for a period of 36 months so that the gain becomes Long – Term Capital Gain with tax advantages. • As certain the fair market price before selling. • Meet brokers in the vicinity and advertise in Newspapers. • Peep into tax aspects before taking a management decision to sell a property. • Understand the impact of section 50C of the Income-tax Act on your property sale registration.

    15. 3(3) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Important Points in “Renting” Real Estate. • Ascertain the fair value of your property before actually renting out your property. • Execute a “Lease Deed” which in particular must contain details of Rent increase in the terms of Lease, the penal action for default in payment of Rent. • Keep in mind the impact of Service Tax and who would bear it, let there be specific mention in the Lease deed or Rent agreement. • Let property use be specified in your Rental Agreement.

    16. 3(4) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. General principles of Investment in Real Estate : For optimum INVESTMENT PLANNING of your REAL ESTATE please stop pause for a moment and always see – • The size of the family. • The age of different family members. • The incomes of different family members • To-day’s Income-tax & Wealth-tax position. • New investment impact on Income-tax & Wealth-tax • Time available at your disposal

    17. 3(5) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Tipsfor Investment Planning of Immovable Property • To purchase property jointly even between husband & wife + major + minor children + one property for W.T. exemption. • Wife & children can take loan from you. • Taking loans is good. • Watch Impact on Self-occupied property viz-a-viz let-out property. • Clear cut demarcation of joint property. • Don’t invest in the name of person owing one property. • Investment in the name of persons whose income and wealth is less. • The concept of “Sale of Roof Rights”. • For daughter – 100% Trust. • Agricultural land and Farm house – (Buy cheap land). • Adopt concept of “Unite to Invest”. • Take care of s.50C. • Buy a Plot of Land for every minor child. • Invest in Agricultural Land. • Multiply Money in Agricultural Land.

    18. 3(6) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Tax Saving on Self-Occupied House property Property : • Guaranteed Tax Saving • You can save as much as Rs.45,000 by way of Income-tax. • For Self-occupied house property for the A.Y. 2011-2012 interest on loan deductible upto Rs.1,50,000. Provided : - Loan after 1.4.1999 - Completion of House within three years from the end of the financial year in which loan taken. - Employee can get benefit on submission of details of interest - Interest loss adjusted against any Income of the year.

    19. 3(7) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Tax Saving on Let -out House property- - Know the new formula for computation of House Property income. Income from House Property (Let Out) Rent received {Actual Rent received only to be taxed.} Less: Vacancy & Unrealized rent. Less: Corporation Tax. Annual Value Less: (i) Standard Deduction = 30% of Annual Value u/s 24 Less: (ii) Interest on Loan = Net Taxable Income. - Just remember : House tax/Corporation tax will be allowed only if actually paid. - No upper limit on deduction of interest on loan. - Loan can be from any one at any rate of interest. Set off and Save Tax: Loss from House property allowed against any other head of income. Less: (ii) Interest on Loan = Net Taxable Income. - Just remember : House tax/Corporation tax will be allowed only if actually paid. - No upper limit on deduction of interest on loan. - Loan can be from any one at any rate of interest. Set off and Save Tax: Loss from House property allowed against any other head of income.

    20. 3(8) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Let “Real Estate” be a part of your “Financial Planner” It is time to prepare a Financial Planner for every investor – by dividing your Investments broadly under following groups and deciding the percentage of investment as per your family situation :- • Zero risk investment • Investment in Mutual Funds • Investment in Real Estate • Investments in Insurance Policy • Risky Investment options • Jewellery & other Investments ●●● Let Real Estate be a part of your financial planner.

    21. 3(9) Important points in Buying, Selling & Renting properties including Capital Gains Tax saving vistas. Real Estate can be your Tax Saver for section 80C Deduction. • Claim deduction upto Rs.1,00,000 on Repayment of Residential Housing Loan. • Payments for Stamp Duty, Registration Fee also eligible for deduction. • Payment eligible for installments paid under self financing or other scheme of any Development Authority, Housing Board, Co-operative Society, etc. • Payment of Amount borrowed from Central or State Government, Bank, Life Insurance Corporation of India or assessees employer (Corporate entity).

    22. 3(10) Residential Property with Loan- tax gain. 1. Always buy a residential property with a Loan & enjoy Tax benefit. • Demarcate Loan and its payments for tax advantage.

    23. 3(11) Property in Joint Names. 1. Take Property in Joint names of different family members and save Income-tax. 2. All co-owners enjoy separate tax deduction even if it is one Property. 3. The Rental Income of Joint Property is taxed separate as per s.26.

    24. 3(12)Rented out Property purchase with Loan- A tax gain Entire amount of Interest on Loan amount is allowed as a deduction. Even if the net figure is loss, it is allowed adjustment during the year.

    25. 3(13)Purchase of Business/Industry Property with Loan 1. Entire Interest on Loan taken for Business/Industry property allowed as a deduction from Business Income. 2. Claim Depreciation & also enjoy deduction on Interest on Loan. 3. Best buy : Loan and Building and Not Land alone so as to get full Depreciation on full value.

    26. 3(14) Housing Loan - Interest • Interest can be claimed deduction U/S 24 even if not paid. • Circular of CBDT - No.363 Dated 24-6-1983.

    27. 3(15) Interest on second Housing Loan 1. Second Loan if borrowed and used merely To repay the original loan and this fact is proved to the satisfaction of the Income-tax Officer, then the interest on the second loan would also be allowed as a Deduction. - CBDT Circular No.28 Dated 20-8-1969

    28. 3(16) Tax benefit on Interest on Loan by Employer. In the case of Salaried Employees, the benefit of Interest on Loan as per section 24 would be granted by employer only if the employee furnishes a Certificate, from the person to whom any interest is payable on the Capital borrowed, specifying the interest payable by the assessee for the purpose of acquisition or construction of property.

    29. 3(17) HRA & Rent Payment 1. You can make Rent payment for a residential house property to your spouse, father, mother, any relative or any person and enjoy tax benefit. 2. You can enjoy HRA benefit by making rent payment and you may also enjoy the benefit of interest on loan for residential house property

    30. 3(18)TDS on Rental Income • TDS only if yearly Rent exceeds Rs.1,80,000 p.a. 2. In the case of co-owners, this limit to be applied separately for each co- owner.

    31. 3(19) Your second Residential House 1. Never buy a second Residential House in your name. • You may venture second residential house in your name but with a Loan, a big tax advantage.

    32. 3(20) Wealth-tax on Your Property • One Property/500 yd. Plot is exempt from Wealth-tax without any limit. Aim at this benefit for all family members. 2. All commercial properties are Wealth tax free. 3. All residential property let out for more than 300 days in a year are Wealth-tax free.

    33. 3(21) Gift – tax on Properties. 1. No Gift-tax either on donor or donee on Gift of Properties – 2. Now applicability of section 56 of the Income-tax Act, 1961 w.e.f. 1-10-2009 3. Gift of Properties to Relatives -no restriction.

    34. 3(22) Property in the name of your Daughter. • Adopt planning and give Property to the daughter preferably through a 100 % specific beneficiary Trust. 2. Separate tax Return and separate exemption even for Minor Trust receiving property in a Trust as per Supreme Court’s decision in M.R. Doshi.

    35. 3(23) Special Provision for Properties received in Gift/Will. In case the “Property” becomes Capital asset of the assessee under a Will or a Gift the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by cost of improvement – s. 49 of the I.T. Act, 1961.

    36. 3(24) Special Tax Provision for taxing Capital Gains. As per s.50C of the Income-tax Act. 1961 the consideration received for Capital Gains purpose would be the value adopted for Stamp Duty valuation. Also applicable for Power of Attorney & Agreement to Sell transactions from 1-10-2009

    37. 3(25) Agricultural Properties 1.Separate set of Rules for Wealth-tax. 2. Separate rules for Computation of Capital Gain. 3. Reinvestment in Agricultural Land to save Tax. 4. Exemption of tax on “Rent” from Agricultural Land.

    38. 3(26) AIR & Properties All property transactions over Rs.30 lakhs are to be informed to the tax department as per Annual Information Return.

    39. 3(27)Unaccounted Money, I.T. Raid & Properties. 1. Never use unaccounted money for Real Estate Transactions. 2. Impact of Income-tax Raid & Survey in Property transactions. 3. Penalty and Prosecution under the Income-tax Law. 4. Tax Scrutiny-on Real Estate Transactions

    40. 3(28) Real Estate Investment Abroad • Have a deep study of the provisions contained in FEMA law. • Investment permitted for every individual upto US $2,00,000 every year. • Think of Investing in USA specially if you have a relative. • Comply with Tax regulations. • Declare your income in Indian Tax Return. • Very bulk cheap Agricultural Land in Africa.

    41. 3(29) Depreciation on Property Registration of Property not necessary to claim Depreciation on Immovable Property

    42. 3(30) Facing old age blues with Real Estate 1. Reverse Mortgage. 2. No Income Tax on Reverse Mortgage. 3. No Payment of Interest etc.. 4. Let your “inheritors” take care of your Real Estate.

    43. 3(31) Unique Idea to preserve your primary Residential House. 1. No Loan 2. No Mortgage 3. Keep Title Deed in Bank Locker with Joint operation only.

    44. 3(32) Tax Saving on Capital Gains from Residential House Long -term C/G for individuals and HUF is fully exempt u/s 54 on transfer of Residential house, if - A. C/G invested in purchase of a residential house within 1 year before or 2 years after transfer or C/G invested in construction of a residential house within 3 years of transfer; AND B. No sale of such house for 3 years; AND C. Utilization of C/G by the date for filing of I.T. Return u/s 139 or deposit of unutilized amount as per C/G A/Cs scheme by last date of voluntary filing of I.T. Return u/s 139 (1).

    45. 3(33) Tax Saving On Capital Gains of other assets by investment in Residential House Property Long -term C/G for individuals and HUF exempt u/s 54F - if the consideration of any other Asset is invested in- • Purchase of a residential house before one year or within two years after transfer; or construction of a residential housewithin three years of transfer; AND B. Then not sold for 3 years; AND C. Not to Purchase within one year or construct within three years after transfer & to own not more than one residential house on the date of transfer. Note: Utilization of the net consideration by the date of furnishing I.T. Return u/s 139 is a must or unutilised amount is deposited under Capital Gains A/c Scheme by last date for voluntary filing of I.T. return u/s 139 (1). The amount is to be deposited with a Nationalised Bank. Two optional schemes are available to tax payers. For details, contact nearest branch of state Bank of India or other Nationalised Bank (other than Rural Branch)

    46. 3(34) Tax Saving On Capital Gains through Cost Inflation Index Cost Inflation Index for different years The Formula for finding out index cost of acquisition or the “Indexed cost of any improvement” would be as under :- Cost of Acquisition X Cost Inflation Index for F.Y. 2011-2012 ------------------------------------------- Cost Inflation Index for F.Y. 1981-82 on later F.Y.

    47. 3(35) Tax Saving On Capital Gains by Investment in Bonds Exemption of long -term Capital Gains is possible on Investment in certain Bonds - s. 54 EC (i) Available to all tax payers • After -1-04-2006 : Investment for section 54 EC can be made only in Bonds of NHAI & REC with in 6 months. • Invest in 54EC Bonds by 30th Sept. 2006, if gains accrue during the period 29/9/05 to 31/12/05 and by 31st December 2006 if accruing from 1-1-06 to 30-6-06.

    48. 3(36) Real Estate Business with No Accounts As per section 44AD if an Individual, HUF or Partnership Firm Carries on Real Estate Business with no accounts the Income on “Presumptive Basis” would be Calculated @ 8 % of the Total Turnover if the Turnover does not exceed Rs.60 lakhs. If exceeding Rs.60 lakhs then Tax Audit required.

    49. 3(37) Agricultural Land • Capital Gains exemption on selling Agricultural Land and buying new Agricultural Land in two years. 2. Exemption of Capital Gains regarding shifting of Industrial Undertaking –s.54G.

    50. 3(38) Distribution of Assets of Firm Non Distribution of the Assets on change of Partners in the Partnership Deed or on Dissolution of Firms, no Capital Gains to the Firm.