People are increasingly looking at exchanging their old property for new ones, while others are looking at upgrading their existing houses to bigger and better ones.

Exchanging property is now possible. This happens with small and emerging developers, depending on the age of the property. In this innovative concept, developers buy land/houses in the suburbs and develop residential units. This is a way out the combat the current lean period in the residential market.

The tax and legal implications enlist the following regulations for such exchanges – The transaction gives rise to capital gains as there is an exchange of assets. However, if the property to be offered in exchange is a house and is held by the individual for more than three years then the entire gains arising on such an exchange could be claimed as exempt under Section 54 of the Income Tax Act, 1961. Possession of the new house must be obtained within two years and the value of the new property should be higher than the amount of capital gain.

If the property to be offered in exchange is a plot of land and is held by the individual for more than three years then the gains can be claimed exempt under Section 54F, if the individual does not own more than one house at the time of exchange. In either case, if the property offered for exchange is held for a period up to three years then the difference between its market value (at the time of exchange) and its cost would be taxable as short term capital gains.

It is advisable to get one’s property valued from a government certified valuation expert and get a certificate. If there is difference in value, the amount should be taken from the developer or additional goodies or facilities should be negotiated. Try exchanging with a property which is ready-to-move-in. However, if the property with which the house is being exchanged is under construction, exchange only on the basis of Agreement to Sell. Do not register the property in favour of the developer till the property with which you have exchanged your unit is registered/handed over to you – says experts at Ikia consulting services.