Buying and Selling of Property, Plots, Flats, Land, Independent Houses, Floors or any other form of residential property is a frequent activity in present scenario. Especially with so much activity in the real estate sector, it has been considered to have given good returns. The attractive home loan schemes have made it even more lucrative. However, the transactions are often subject to complicated income tax structure. Here is one case that may solve some of your queries.
When you are about to sell a piece of land for a profit, it is quite likely that Capital Gains Tax would be imposed in the form of Long Term Capital Gain (LTCG). This remains a concern for a lot of people that how can they possibly avoid Capital Gains Tax arising out of the Long Term Capital Gain. In the present article we are discussing an example case.
In the present case the example assessee, an individual, is in the process of transferring a long term capital asset not amounting to a residential house and the proceeds are to be utilised to buy a capital asset amounting to residential house.
The treatment of capital gain on the transfer of capital asset not amounting to residential property is under consideration. Section 54F of the Income tax Act 1961 deals with the current situation.
Where the assessee is an individual, and capital gain arises from the transfer of any long term capital asset (not being a residential house) which in the present case is a piece of land (not amounting to agricultural land) and the assessee has within a period of one year before or after the date on which the transfer of the original asset has taken place, has purchased a residential house (new asset) or has constructed a residential house within three years; the capital gain shall be dealt as per the following conditions:
- If the cost of the new asset is more than the net consideration received in respect of the original asset, the whole of such capital gain shall not be charged to capital gain tax as per section 45 of the Income Tax Act.
- If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears the cost of the new capital asset shall not be charged to capital gain tax as per section 45 of the Income Tax Act.
However, the capital gains exemption enumerated in (a) & (b) above is subject to the some conditions. The benefits as discussed shall not be available if:
- If the assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset.
- If the assessee purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset
- If the assessee constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.
If you have further queries on the subject of tax related queries, the experts in the panel would be happy to help you with sound tax advice.
Hi Pankaj,
I had purchased house in 2008 in Pune PCMC area. My agreement value was 19.5L and I invested 6L for interior in 2008.
I sold the house in 2012 to 70L. As part of disbursement of the agreement value, purchaser paid me booking amount 10L. I used this amount to clear my housing loan. Remaining amount was paid by purchaser through bank loan, I have below questions
1. Can the LTCG amount I used to repay my housing loan be considered for tax exemption?
2. I have another housing loan where I am co owner with wife for other residential property. We have received possession of this property couple of months back. Can I use the LTCG amount to repay the loan with tax exemptions?
3. Can I invest remaining LTCG in below options with tax exemption
a. agriculture plot which will be converted into NA land for industrial purpose
b. Buying a Car
c. Book a flat
4. Out of 70L, amount which is not considered in LTCG, do I have any restriction to invest ? Can I invest it in 3a or 3b of above question?
Thanks,
Satish Gore
@Satish
1. There is no exemption on paying home loan from LTCG amount.
2. Again, there is no benefit on home loan payment. But as per section 54, you can claim tax benefit for new house purchase, if possession of new property is taken within one year before sale of house. If your share in new property is more than gains earned from old house sale then no income tax is payable on LTCG.
3. You can only get tax benefit if you invest LTCG amount into a residential house property u/s 54 or into capital gain bonds u/s 54EC.
4. After investing long term gains amount (41.5 lakhs) into residential house property, you can free to spend remaining amount of sale consideration anywhere.
Please find LTCG computation below:
Purchase Year = 2008-09, Purchase Cost = 1950000, Cost Inflation Index (CII) for purchase year = 582
Sale Year = 2012-13, Selling price = 7000000, CII for sale year = 852
Indexed Purchase price = 1950000 x (852/582) = 2854639
Long term capital gain = 7000000 – 2854639 = 4145361
Hi Pankaj,
Thanks to share your views I am regular viewer your Blog.
I have one concern please help me for this.
we have 4(partner name A,B,C,D) partner started firm in 2010 name “ABC enterprise “and invested 11.50 laks each. We have purchased the plot with the same name in 2011 .After that 3 Partner(B,C,D) are retired partner(New “E” partner) add This new partner is invested the money in same firm for development the property.
Now we have five decided to sell the plot. Our plot purchase is prize is 43 laks (including all)
And selling plot prize is 75 laks. So please let me know may I give 11.50 laks each from this amount and remaining profit will distribute between “A “ and “E”.
Please let me know the tax amount also .how to pay tax?
Thanks,
Rahul
@Rahul
We have little knowledge on taxation of partnership firms. Please ask this questions on another forum.
HI,
ONE OF MY CLIENT SALE HIS NON AGRICULTURE LAND ON OCT2012 FOR RS 1223160/- UNDER RAIL PARIYOJANA AND TDS DEDUCTED ON THAT IS RS. 122316.
HE CONVERTED THIS LAND FROM AGRICULTURE TO NON AGRICULTURE IN JAN 2004. AT THE TIME OF CONVERSION STAMP DUTY IS RS. 3250 AND NIYAMAN CHARGES IS RS. 63840/- LEASE AMT @2.5% RS 15960.
HE DOESN’T HAVE COST OF PURCHASE BECAUSE THE LAND WAS BELONG TO HIS GREAT GRAND FATHER.
IS DLC RATE REQUIRED FOR 2004 OR IS DLC AVAILABLE ON NET?
PLS SOMEBODY HELP ME TO CALCULATE CAPITAL GAIN.
@Swati
In case property was purchased before 1981, fair market value as on 1st April 1981 needs to be considered as purchase value.
Purchase Year = A, Purchase Cost = P, Cost Inflation Index (CII) for purchase year = X
Sale Year = B, Selling price = Q, CII for sale year = Y
Indexed Purchase price = P x (Y/X) = R
Long term capital gain = Q – R = S
Income tax on capital gain = S x 20%
Purchase year would be 1981-82, CII for 1981=100
Sale year=2012-13, CII = 852
Selling price = 1223160
Conversion and niyaman charges can be added with indexation to purchase cost. CII for 2003-04 was 463.
thanks pankaj, that means we need to find out 1981 purchase price! how can i get the land value of 1981 pls suggest?
@Swati
There are people in market who are govt approved valuators. They can tell fair market price in April 1981.
Hi Pankaj,
I have invested amount in Capital Tax Gain and now wanted to construct the house on the plot and use this money. Please advice if I can withdraw money by cash and draft favoring myself name as I need to pay labor and local contractors.
@Vikas
You can withdraw amount in draft form, by submitting Form ‘D’ in duplicate with the details regarding manner and extent of utilization of amount of immediately preceding withdrawal.
My relative had a plot allotted to him by TN Housing Board(TNHB) in 1971 and he constructed a residence on it. He expired in 1985. Subsequently the TNHB gave a Sale deed of the plot in 1996 to his wife’s name after submition of death certificate of her husband and Legal Heirship certificate. Presently the property in her (Wife) name. The corporation property tax, water tax and electicity service are in her name.and is being regularly paid.
She has grown up 3 sons and 3 daughters. Now she is 80 years old. She wants to sell the property and give the proceeds to all the children, retaining a share for her.
Can she avoid/minimise the capital gains on the sale of the property by dividing the proceeds to all the 6 children,who can reinvest in property individually for their needs.
Or can she make a settlement of the property on all the 6 children name and herself, and make the sale of the property, so that the sale share proceeds go directly to their name (children make either pay the capital gains proportionate to their dues or invest in construction/purchase of property
@Krishnamurthy
She should first transfer property share among children and her before selling it.
This would make sure that all tax liability would be of individual owners. They can either decide to pay tax or avail tax benefit by investing into another residential house property or capital gain bonds.
I am contemplating to sell our residential house cum land for an amount of Rs.1.10 crore. The property is being inherited from our parents who bought it in 1977. We are two brothers, and both had booked flats of 35 lakh and 22 lakh respectively. How to save tax and pl forward the calculation.
@Atanu
Long term capital gain computation is shown below:
Purchase Year = A, Purchase Cost = P, Cost Inflation Index (CII) for purchase year = X
Sale Year = B, Selling price = Q, CII for sale year = Y
Indexed Purchase price = P x (Y/X) = R
Long term capital gain = Q – R = S
Income tax on capital gain = S x 20%
CII was started in 1981-82, so purchase year would be 1981-82 and purchase price would be fair market value as in april 1981.
Sale price would be 1.10 crore. CII for 2013-14 has not been declared yet, but should be minimum 920.
This long term gains would be divided among all shareholder in same ratio in which they own property.
To save tax on long term gains fully, each holder can buy/construct another residential house property for amount more than their share of gains u/s 54.
i got immovable property on will of my mother in 2007, i sold it (on agrement) in 2012 November, property was purchased by my father in 1966-67, the property was transferred in the name of my mother on death of my father, how capital gain will be calculated,
thanks
ashok devnani
@Ashok
Long term capital gain computation is shown below:
Purchase Year = A, Purchase Cost = P, Cost Inflation Index (CII) for purchase year = X
Sale Year = B, Selling price = Q, CII for sale year = Y
Indexed Purchase price = P x (Y/X) = R
Long term capital gain = Q – R = S
Income tax on capital gain = S x 20%
CII was started in 1981-82, so purchase year would be 1981-82 and purchase price would be fair market value as in april 1981.
Recently I made an HUF consisting my family members. Is it possible to make any change in the members of the HUF, by deletion or addition by me (I am the KARTA). I wish to include my daughter in the HUF. Also I wish remove my daughter-in-law from the HUF. Is it admissible
@Krishnamurthy
We have little knowledge on this subject. Please ask it on a different forum/website.
I have purchased one plot for rs 3,60,000 in 2005 and it is sold for Rs 1,20,00,000 in 2013, now i have one house at village grampanchayat area on my name and I want to purchase one house in pune city which costs around 1,20,00,00. pl. tell me about tax details.
@Sudhir
As you only have single residential property in your name at the time of sale of plot, you can take tax benefit u/s 54F.
If you buy new residential house property for price more than sale consideration of plot, no tax would be payable.