Should I invest in bonds or buy property?

S. C. Vasudeva
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Q.I had purchased a plot in 1992 from an original allottee (allotted on 28.9.89) by Improvement Trust for Rs 1.5 lakh and had got it transferred in my name. I got the registry for this in 2010 where as I had constructed a house on it in 1998. Following are the details of expenditure over the years: 

On registration: Rs 1,22,100 (enhanced price Rs 6,325, stamp duty Rs 9,800) 

Extension of construction period: Rs 3,5000 

Road cutting etc.:  Rs 5,930 

Map fee etc.: Rs 725 

Construction of house: Rs 15.03 lakh as valuated by govt. approved valuator. 

Total: Rs 16,66755    

Now I am going to sell this house for Rs 60 lakh. I am a senior citizen and am paying income tax (@10%). My queries are: 

• How much will be the long-term gain and tax? 
• To save tax how much should I invest in bonds /any other way around, or property purchases. How to show this in income tax statement of this year/next year?
• Can I gift some money to my married children? 
• Also in last year I didn’t receive pension for four months, and have got the arrears of that this year. Last year there was margin of tax saving, can I revise that statement by putting arrears received in this year to save tax?   — k.k.chanana

A.The following assumptions have been made for replying to your query as facts given therein are not clear:

• That the plot was purchased in the financial year 1992-93 for a sum of Rs 1.50 lakh.
• That construction took place in the financial year 1998-99
• That the expenditure on registration etc. of Rs 1,22,100, Rs 35,000, Rs 5,930 and Rs 725 was incurred in the financial year 2009-10.

The reply given below is, therefore, based on these assumptions.

a) Indexed cost of plot of land works out at Rs 7, 27,130.

b) Indexed cost of construction of Rs 5,03,000 works out at Rs 46,28,897

c) Indexed cost of improvements works out at Rs 2,80,094.

d) Aggregate indexed cost would thus be Rs 56,36,121.

e) The amount of long-term capital gain would thus works out at Rs 3,63,879.  Aforesaid computations have been made on the basis of cost inflation index notified for 2015-16 (1081). You can buy tax-saving bonds of the aforesaid amount within six months of the date of sale of house.

You can gift any amount to your married children out of the consideration accruing on the sale of the house less the amount utilised for purchase of tax-saving bonds or the amount of tax leviable on capital gain in case you do not buy the tax-saving bonds. You can revise the return for the preceding year so as to avail the benefit of full amount of savings.  The return for the assessment year 2015-16 can be revised up to March 31, 2017.

Gifting property to daughter in USA

Q.I intend gifting property to my daughter who is a student-cum-housewife in USA with Indian passport. She wants to have her own house in USA. Please let me know which of the following options will be the best: 

• Gifted property is sold by her in India and sale proceeds deposited by her in her NRO account and utilised by her for purchase of a house in USA.
• She invests the sale proceeds in NHAI /RECL — government-approved bonds for three years and thereafter on maturity in NRO account and then utilised for the purchase of house in USA. 
• What are the rules applicable for transfer of amount by income tax/RBI in this case. 
• In case I sell the property and deposit the sale proceeds in three-year bonds, then after maturity will I be able to gift the full amount to her. What will be my tax liability as also that of recipient? My daughter has no income in India/USA. Please clarify if acquisition of house in USA against sale of gifted property from Father will enable daughter to get the relief from taxability of capital gain in this case. — Dinesh Kumar

A.Your queries are replied hereunder on the presumption that the immovable property has been held by you for more than three years: 

• In case an immovable property is gifted by you to your daughter who is settled abroad, a gift deed will have to be registered and stamp duty on the basis of the market value of the immovable property will have to be paid. A sale of the said property after receiving the gift, would make her liable to pay tax on the capital gain arising on the sale of such a property. 
• She can invest the amount of capital gain arising on the sale of such immovable property in the acquisition of NHAI/RECL bonds with a lock in period of three years. This will enable her to save tax on the gain arising on the sale of the immovable property. The amount received on redemption of such bonds will have to be deposited in her NRO account. She can thereafter remit such amount for buying a property in USA. 
• The amount realised on the sale of an immovable property in the nature of a residential house belonging to a non resident Indian can be remitted after payment of due taxes without any problem. 
• In case you sell the property and invest the amount of capital gain in the acquisition of tax saving bonds, it will be possible for you to remit the amount to USA after the maturity of such bonds. However, you would be able to remit a maximum amount of  $2.50 lakh per financial year without RBI approval. You would not be liable to pay any tax on the amount gifted to your daughter. She would also not be liable to pay any tax in India in respect of the amount of gift so received. 
• The purchase of property in USA out of the sale consideration of immovable property may not entitle her to claim the benefit of tax in India in view of amendment made in law by Finance Act 2015. The best course open to you would be to sell the property yourself and invest the capital gain in the acquisition of tax saving bonds and gift such amount to her after the maturity of the bonds.

Can a builder change terms in buyer’s agreement?

Q.In buyer’s agreement with real estate company there is unconditional provision for substituting the name. Also company will pay penalty after 2 ½ years if the possession of flats is delayed. On our request the company is substituting our daughter's name but when she asked for penalty to be paid the company quoted the condition as below in the new affidavit now taken from her. “That I/we hereby clearly agree and understand the development/ construction period of the said unit as stated in allotment letter/ agreement shall be reckoned w.e.f. date of endorsement allotment written in my/ our favour and we shall not claim any compensation for delay in offer possession of said unit by the company.” My queries are: 

• Can any company change condition of buyer’s agreement when it mentions only substitution of name without any condition?
• When penalty benefit to us how can it be changed to disadvantage our daughter when all other conditions have been accepted. The penalty benefit should be available to our daughter also. 
• How can delay in offer of possession will be counted from the date of substitution/ transfer ignoring five years from the date of booking. 
• Can we ask for arbitration if company does not agree. 
• Any judgment on the above issue if you can provide. — Dr. D.N. Mehta

A.It seems the builder asked for the affidavit containing the clause with regard to the surrender of right in respect of compensation for delay in offer of possession of the flat by the builder. This affidavit must have been obtained from your daughter at the time of substitution of her name in the buyer's agreement.  Your queries are replied hereunder on the basis of the above assumptions:

• It is not possible to give a categorical reply with regard to the change in buyer's agreement sought to be made by the builder at the time of substitution of name until the entire agreement is looked into. Normally the agreement is so worded that it allows an option to the builder to change a clause at the time of any change in the buyer's agreement.  
• You are right in pointing out that no change could have been made to the disadvantage of your daughter without bringing this aspect to her notice.
• There is no reason that she should be denied the benefit of compensation for delay on the part of the builder.  However, as stated above, one will have to look into the entire agreement to legally determine the above proposition. I fully agree with you that offer of possession should be counted from the date of entering into the agreement and not from the date of substitution of the name.  You may approach the consumer court and I am hopeful that the consumer court would hear your grievance sympathetically. 
• Arbitration with regard to any matter is possible in case the agreement entered into with a person so provides or the Court refers the matter to an arbitration.  

It may be added that consumer courts have been very sympathetic in this regard and have always granted benefit to the consumers. I may also bring to your notice that the decision of the Supreme Court with regard to the one sided agreement entered into by DLF with the buyers was held to be against the interest of the buyers.  You may also consult a lawyer for seeking justice from the Court of competent jurisdiction in this regard.