Sale of Sonam Kapoor’s flat sparks buzz, real estate has given returns, is this?

Bollywood actress Sonam Kapoor, who bought her BKC flat in 2015, sold it last week for almost Rs 20,000 more on December 29, 2022. 32 crores. But this is not the point of discussion on real estate’s ability to deliver returns. This was the amount for which he had bought the property!

Stock analyst Aditya Shah tweeted on Thursday that “real estate doesn’t always make money!” He cited the example of Sonam Kapoor’s Bangalore flat, which was bought Sold in 2015 for 31 crores more 32 crore in 2022. the edge is somewhat visible around 1 crore.

Soon after Twitter users shared their opinion on the tweet and many disagreed with the phrase “real estate isn’t making money”; Some even trolled the actress.

“It is when you are doing it for capital gains exemption (Section 54),” replied Aman Goyal, co-founder of AI-powered omnichannel cloud communication-as-a-service company, adding, “Up ” 5 crores of capital gain, including LTCG surcharge is 28.49%. You can buy and hold the property for 3 years and save by paying just 6-7% in stamp duty.”

While a user named Rushil R said, “If you factor the rental yield for Bandra locality from 2015 to 2022, it will be more than the return of Nifty 50.”

Furthermore, Arvind Raj, a technical advisor, said, “Real estate in metros will not give higher returns than the index IMO in coming years,” and added, “Better but in tier-2 cities. And better quality of life than metros.” Quality is also good (but ease and entertainment will be less than Metro).”

Meanwhile, Zorro co-founder Abhishek Asthana, popularly known as Gabbar Singh, also spoke about the sale of Sonam Kapoor’s Bandra flat in a cryptic tweet. He tweeted, “Sonam Kapoor bought a flat in Bandra in 2015 for 31 crores and sold it in 2022 for 32 crores.” He added, “Smart people will understand what happened.”

Let us understand the short term and long term capital gains on real estate and tax exemption on sale of property.

As per the Income Tax Act, a short-term capital asset is an asset held by the taxpayer for a period not exceeding 36 months immediately preceding the date of its transfer.

On the other hand, capital assets which are held by the taxpayer for a period of more than 36 months immediately preceding the date of its transfer are considered as long-term capital assets.

Notably, the tax rates on capital gains depend on the nature of the gain, whether it is short term or long term. Therefore, for determining taxability, capital gains are classified into short-term capital gains and long-term capital gains. Thus, the tax rates for long-term capital gains and short-term capital gains are different.

The calculation of long-term capital asset is:

Full value of consideration (sale consideration of assets) – Expenditure incurred wholly and exclusively in connection with transfer of capital assets = Net sale consideration.

Long term capital gain = Net sale consideration – Indexed cost of acquisition – Indexed cost of improvement, if any.

It needs to be noted that indexation is a process by which the cost of acquisition is adjusted against the inflationary increase in the value of a property. The cost inflation index has been notified by the government for this purpose. But the benefit of indexation is available only to long term capital assets.

Generally, long-term capital gains are taxed at the rate of 20% subject to applicable surcharge and cess. However, in certain cases such as listed securities, UTI units, or mutual funds, an additional surcharge and cess of 10% is levied on LTCG.

Tax exemption:

Section 54 of the Income Tax Act is most popular for providing relief to residents who are selling their old house. However, it needs to be noted that section 54 provides relief to a taxpayer who sells his residential house and acquires another residential house from the sale proceeds.

Section 54 also has certain conditions. These are:

– The benefit of section 54 is applicable only to individuals or HUFs.

The asset transferred should be a long-term capital asset, being a residential house property.

– Within a period of 1 year before or 2 years from the date of transfer of old house, the taxpayer should acquire another residential house or construct a residential house within a period of 3 years from the date of transfer of old house needed. In case of compulsory acquisition, the period of acquisition or construction shall be determined from the date of receipt of compensation (whether original or additional).

– Exemption is allowed to be claimed in respect of a residential house property purchased / constructed in India

Then comes section 54EC where tax exemption in respect of LTCG can be claimed from the sale of any asset by investing in bonds which are generally issued by infrastructure companies. These bonds belong to REC, PFC, NHAI and IRFC.

Further, Section 54GB of the IT Act allows exemption of LTCG on transfer of residential property if the net consideration is invested in equity shares of a new startup before the due date of furnishing of income tax return.

Real Estate Outlook for 2023:

Sudarshan Lodha, Cofounder and CEO, Strata Property Management, said, “We expect the trend to continue in 2023 and see reduction in vacancy rates, stronger ROI, more substantial NRIs, and infrastructure development with FDI investments and concerted government initiatives.” will help in promoting. For growth in the office space segment. We expect more traction in Tier-II cities with increased employment opportunities and economic activity in these markets.

Additionally, Lodha said, “With a behavioral shift towards digitalisation, we will see more people investing in commercial properties through fractional routes. Overall, real estate will continue to be one of the ideal investment asset classes, and as that the pandemic has faded, the commercial market begins to flourish in the major cities of the country.”

Furthermore, Vimalendra Singh, Chief Sales & Service Officer, Mahindra Lifespaces, said, “The theme of the year 2022 has been appreciation. Despite the recent volatility, the Indian real estate market has grown, instilling confidence in home buyers and investors alike. The desire for home ownership has been strong since the pandemic began and remains strong.”

With regard to rate hike trends and their impact on homebuyers, Singh said, “With the increase in repo rates by the RBI, home loan interest rates saw a rise. However, it had almost negligible impact on sales and customer sentiment in the past.” Additionally, developers’ flexible payment plans have also encouraged home buyers to complete their purchases. This was also the year of support for sustainable and innovative products among new-age eco-conscious homebuyers.”

For 2023, Singh said, “Demand and supply dynamics are expected to remain resilient in 2023. Even considering expectations of another round of rate hikes, the market is likely to respond positively.” As compared to last year. We expect the same. The momentum will continue in the coming year and remain confident of the growth of the entire industry.”

Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint.