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.
kuch samajh nahi aaya..looks like a communication from one lawyer to another
Dear ,
As I want some clarification on below matter.
1. I am living in Ahmedabad in a rental house.
2. I have purchased new houese through bank loan.
Q. Either I claim HRA as a exemption or Housing loan interest ? or Both
@Ketan
You can claim interest and principal of your House loan from the year in which you get possession.
Whenever you start claiming rebate for principal and interest amount and you work in an office which is at a commutable distance to your owned house(less than 50 Kms), then you cannot get benefit of HRA.
If your owned home is far away from your office, then you can claim both HRA and Loan benefits.
Hi Pankaj,
My Father has sold an house in march 2010 for which he received possesion in 1986. He wants to invest this amount in buying a falt in a socity. This project will get compleated in next 2.5 to 3 years. If he book a flat in this socity will he able to save LTCG tax.
Please let me know in simple language
.
Thanks
@Ashish
Since you have kept the house for more than three year, its long term capital gain.
In case of long term gain, you can invest the amount again in buying another house (within a year of selling or within 2 years of transfer) or construct another house within 3 years of sale or Investments in bonds within 6 months of sale (Section 54 EC of the Income Tax Act) issued by Rural Electrification Corporation, National Highways Authority of India and National Bank of Agricultural and Rural Development.
In case you are not decided about buying new property but intend to buy one later and still want a deduction on the tax on your capital gain, you must invest whole amount in Capital Gains Scheme of Deposit Account, which can be opened in any public sector bank branch. But if this amount is not used for buying new house within three years, tax on long term capital gain have to be paid.
Income tax on long term capital gains is 20% with indexation and 10% without indexation (only applies to some mutual funds and debentures).
So you can calculate tax using below method.
Lets say purchase price = X, purchase year = P, sale price = Y, sale year = Q
Cost Inflation Index (CII) for year P = R, Cost Inflation Index (CII) for year Q = S
Indexed purchase price, Z = X * (S/R)
Capital Gain, C1 = Y-Z
Tax with indexation = C1*20%
Hi Pankaj,
Tell me one thing, if a person is unable to find a suitable property to invest in. What is the procedure to withdraw money deposited in Bank under Capital Gains account.
Regards,
Vaibhav
@Vaibhav
You have to give a written request to your bank to close that account and you have to pay capital gain tax on that.
Hi Pankaj,
Thanks for responding, but bank informed me that you have to bring Tax Paid clearance letter from IncomeTax department and then they will release the fund. Means you pay tax upfront and then they will clear the capital gains.
Is that true. Can you pls thru some light on this as well.
Regards,
Vaibhav
@Vaibhav
You have to get the approval from your income tax assessing officer in Form G and submit it to the bank.
Hi Pankaj, I came to you site researching the meaning of Acquisition date for the purpose of long term Capital gain tax.
My queries are
1. Can we treat allotment letter issued by Housing authority (HUDA). It is a plot and payment was done over the period of 6 year in installment?
2.
Alloted in 2002
Possession offered 2006
Full payment done by 2008
possession on paper took on 2009
Now some says that allotment date can be taken as acquisition date they cite some DDA case (cir 471) but they mention flat.
But in my case it’s plot. Can there be two definition of acquisition for plot and flat?
In my case can I take allotment date a acquisition date please?
@Anurag
Yes allotment letter can be treated as acquisition date for long term capital gain calculations in case of a flat.
But as yours was a Plot and no construction has been done, so case is bit complex. As I am not a account/finance professional/CA. I would request you to consult any tax professional regarding same.
You may also read this: http://www.caclubindia.com/articles/long-term-capital-gains-exemption-u-s-54f-5023.asp
hi pankag…
my father had purchased a shop in 2006 n now v r selling it n we want to invest that money in plot….please can u tell me that how can i save my capital gain tax……
please reply as soon as possible
@Rahul
According to income tax laws, treatment of capital gains from sale of house property(Section 54) and commercial property(Section 54F) is different.
To save tax in 1st case (gains from sale of house property) one has to invest only the gain part. (If purchased for 10 lakhs and sold for 25 lakhs, then only 15 lakhs needs to be reinvested to avoid income tax on long term capital gain).
Whereas in 2nd case (gains from sale of commercial property/jewelery etc), the whole selling amount needs to be reinvested to avoid income tax.
Now where to invest, those rules are same as in both cases, and you may read them on this article.
Sir,
I am Resident Indian and not a salaried person. If I sell a plot in the category Long term capital gain, the sale proceeds will be my only income. In this case am i eligible for standard deduction.
Swaminathan
@Swaminathan
Capital gains cannot be included with income from salaries and tax can only be avoiding by investing further into property only. No standard deduction rules applies here.
thanks for ur suggestion ..ur reply has helped me a lot..
Sir,
Thanks for your reply. I have one more doubt. Say I bought a plot for Rs 7 lakhs in year 2003 and sold for Rs. 14 lakhs in year 2010. I am not a salaried person and do not have any other income in the years 2003-2010.
Can I consider the following:
The capital gain in the above deals is : 7 lakhs.
This capital gain income is earned over a period of 7 years.
In these 7 years 2003-2010 the average income per year is : 1 lakh.
Assume, As per income tax department the exemption limit per year is : 1 lakh.
In the above case is there a necessity to pay income tax on the capital gain of 7 lakhs.
I thing all the capital gain income is exempted by the exemption limit during the years 2003-2010. So, there is NO income tax on capital gain.
Is my tax calculation correct.? Please inform me.
@Swaminathan
Capital gains can not be divided among the number of years during which it has accumulated.
If you want to save income tax on this gain, you have to invest 7 Lakhs again into some residential property.
Income tax on long term capital gains is 20% with indexation and 10% without indexation(only applies to some mutual funds and debentures).
So you can calculate tax using this method pay that amount.
Purchase price = 7 Lakhs, purchase year = 2003, sale price = 14 Lakhs, sale year = 2010
Cost Inflation Index (CII) for year 2003 = 463, Cost Inflation Index (CII) for year 2010 = 632
Indexed purchase price = 7 Lakhs x (632/463) = 9.555 Lakhs
Capital Gain = 14-9.555=4.445 Lakhs
Tax with indexation = 4.445 Lakhs x 20% = 88,898 Rs
So you have pay this amount as income tax on this capital gain.
Dear Sir,
I would want to know if I can have the option of computing Long Term capital gains on house property without indexation. If yes, please let me know the relevant section.
I would be grateful to receive a prompt reply.
Thanking you.
Kind regards
Bhagyanathan
@Bhagyanathan
Capital gains on House property can only be calculated through indexation method.
@Vaibhav
You have to get the approval from your income tax assessing officer in Form G and submit it to the bank.
Hi!
I already own a house for more than 5 yrs and would like to sell it and in turn I have purchased a flat under construction linked plan. The construction is yet to start and I hv to pay downpayment (95%) to the builder. Whether I can sell house and pay downpayment to builder. If I do that, what will be my tax liability
Thanx in adavnce
@Suresh
Income tax on capital gains earned by selling house can be saved by investing the gain amount in another house.
As you are buying new house, there won’t be any tax liability if all gain has been used for buying new house.
my father has purchased a residential property in 1961 for Rs 1800 only now in 2010 it has value of Rs.50 Lacs . what will be the LTCG tax for it and how can we can save this tax without investing this into a residential property . As my father is a senior citizen also. Thanks
@ArunKumarSharma
Since you have kept the house for more than three year, its long term capital gain.
To save income tax on LTCG, you can invest in bonds within 6 months of sale (Section 54 EC of the Income Tax Act) issued by Rural Electrification Corporation, National Highways Authority of India and National Bank of Agricultural and Rural Development.
Income tax on long term capital gains is 20% with indexation. So you can calculate tax using below method
Lets say purchase price = X, purchase year = P, sale price = Y, sale year = Q
Cost Inflation Index (CII) for year P = R, Cost Inflation Index (CII) for year Q = S
Indexed purchase price, Z = X * (S/R)
Capital Gain, C1 = Y-Z
Tax with indexation = C1*20%
Cost inflation index was started in 1981-82 and its value was 100 for that year.
As the assets sold had been acquired before April 1, 1981, you have the choice of substituting the actual cost with market value as on April 1, 1981.
For 2009-10, CII is 632.
boss,
my father bought a house for 8000 in 1968 from monet given by his uncle ( as part of my father’s share out of anscestor’s house).
my father and mother both are no more with us. I and my brother sold off the house in March 2010 for total 2300000 ( 115000 each).
i gave advance money 675000 for buying a house in resale ( property – apartment, is still not possessed and is still with builder but we intend to take possession in June 2010). My wife paid token money of 1725000 in march 2010. bank paid loan on 31st march around 60 lacs. EMI started on 11th April 2010.
kindly let me know on how to show these transactions in ITR and also if there is any LTCG liability.
thanks
anil
@Anil
There should be any long term tax gain liability on this as if you consider indexation, capital gain won’t come out as +ve.
For interest portion of loan, you can show that as Housing loss and for principal portion, you can claim benefit under 80-C.
thanks for ur reply. did not understand 1st sentence of ur reply.
indexation started from 1981, if i consider this as 100, for 09-10, value is just 4000×6.32 inr, while selling price is 1150000 ( my share of house ) so how come there is no + capital gain. kindly clarify
@Anil
Sorry for replying earlier without reading the details.
You have to assume a 1981 valuation for property (not 1968′s price), lets say, 2.5 times the price in 1981. That makes it 10000.
Now cost in 2010=6.32*10000=63.2K
Selling price = 1150k
Total gain = 1150-63.2= 1086.8K
Money invested back in buying a property= 675K
Net capital gain, on which tax to be paid (@20%) = 411.8K
Is bank loan on your wife’s name or your name?
I think, If its in your name, you can prepay this 4.118 Lakh to save income tax, as still you are paying towards new property. But please consult this any tax professional or a CA.
Hello Pankaj,
I have a question and appreciate your reference to any valid tax law clause or a court law case decision related to the following situation
Can a wife (member of undivided hindu family) invest the LTCG funds coming out from from sale of a residential plot “A” (that plot “A” is registered under her name only) for construction of a “first floor” on a property “B” that is currently registered under only husband’s name.
@Rao
Please consult any CA or tax professional regarding this query. I am not sure about this case.
my father has purchased a residential property in 1961 for Rs 1800 only now in 2010 it has value of Rs.50 Lacs . what will be the LTCG tax for it and how can we can save this tax without investing this into a residential property . As my father is a senior citizen also. Thanks
@Amy
Since you have kept the house for more than three year, its long term capital gain.
In case of long term gain, you can invest the amount again in buying another house (within a year of selling or within 2 years of transfer) or construct another house within 3 years of sale or Investments in bonds within 6 months of sale (Section 54 EC of the Income Tax Act) issued by Rural Electrification Corporation, National Highways Authority of India and National Bank of Agricultural and Rural Development.
In case you are not decided about buying new property but intend to buy one later and still want a deduction on the tax on your capital gain, you must invest whole amount in Capital Gains Scheme of Deposit Account, which can be opened in any public sector bank branch. But if this amount is not used for buying new house within three years, tax on long term capital gain have to be paid.
Income tax on long term capital gains is 20% with indexation. So you can calculate tax using below method.
Lets say purchase price = 1800, purchase year, P = 1800, sale price, Y = 50 Lacs, sale year, Q = 2010
As cost inflation index was started in 1981, you can take approx. purchase price for 1981, Lets say, X = 10000.
Cost Inflation Index (CII) for year 1981, S = 100, Cost Inflation Index (CII) for year 2010, R = 632
Indexed purchase price, Z = X * (S/R) = 10000*(632/100) = 63,200
Capital Gain, C1 = Y-Z = Around 49.4 Lacs
So either you pay 20% on this gain or invest this amount into another property.
Tax with indexation = C1*20%
Hi
I have sold a flat in March and want to invest in a plot and construct house later within 3 years. The cost of plot will be almost the total capital gain i have got from flat sale.will this be considered for capital tax exemption under section 54.
@Viswagnana
Yes, capital gains will be exempted from tax as you are investing in another residential property.
Dear Pankaj,
I bought a flat for 2.5Lacs. Agreement to Sale date is Oct’2005. Possession letter from the builder is dt. Oct’2008. I have sold the flat for about 12 Lacs in Nov’2009.
Whether this comes under Long term capital gain or no? Which dates are to be considered as reference date for calculating the holding period of 3 years.
@Kedar
Yes, it comes under long term gain as time is counted from sale agreement date.
Income tax on long term capital gains is 20% with indexation, So you can calculate tax using below method.
Purchase price = 2.5 Lacs, purchase year = 2005-06, sale price = 12 Lacs, sale year = 2009-10
Cost Inflation Index (CII) for year 2005-06 = 497, Cost Inflation Index (CII) for year 2009-10 = 632
Indexed purchase price, Z = 2.5 * (632/497) = 3.18 L
Capital Gain, C1 = 12- 3.18= 8.82 L
Tax with indexation = 8.82 L *20% = 1.764 Lacs
I have sold my property in november 2009 for 16.20 lakhs and brought two new sites (property) one in dec 2009 at 12.86 lakhs and one in jan 2010 at 6.5 lakhs, what is the capital gain tax I have to pay and which form I have to fill and how to fill the form
@Prasad
You have sold property for 16.20 lakhs, but you have not told what was purchase year and price.
Income tax on long term capital gains is 20% with indexation, So you can calculate tax using below method.
Lets say purchase price = X, purchase year = P, sale price = Y, sale year = Q
Cost Inflation Index (CII) for year P = R, Cost Inflation Index (CII) for year Q = S
Indexed purchase price, Z = X * (S/R)
Capital Gain, C1 = Y-Z
Tax with indexation = C1*20%
As you have purchased more property from the capital gains, there won’t be much tax payable. There is no separate form for showing this and you have to simply file income tax return.
Suppose If I have a flat, which I bought in 50 lacs in 2004 ,and if I sell that flat after DTC implemention (for ex: in 2012) in 1 Crore.
How can save my tax on 50 lacs (gain) after DTC implemetation. (can I invest the gain i.e. 50 lacs in property (against property), or any govt bond after DTC )
@Rajesh
There has been changes in new DTC notification which will impact FIIs more than an individual investor.
Still DTC has not been implemented and detailed rules are yet to be out.
Hey Pankaj :
I had taken a home loan of 14.5 Lakhs in 2005 ,in order to Purchase a Land ( 7.3 Lac ) and constructed the house ( combined Home Loan ) , from the Bank . I also paid a total Interest of 4.5 Lakhs to the Bank ( from 2005 to 2010 ) .
Now , if I sell the House for 20 Lakhs . Can you please let me know how Is Long Term Capital Gain Computed ?
In this Scenario , what is the Purchase Price of the House ? Is it the loan amount of 14.5 Lakh ? If I had put an additional amount during construction ( some miscellaneous charges ) , how can we include such charges in the construction price of the Home ?
Regards
Mani
@Mani
Tax benefit for home loan interest is already there separately and cannot be added to cost of the house.
But loan processing fee, brokerage (to property dealer), stamp duty and other misc charges can be added to the cost of the property.
Income tax on long term capital gains is 20% with indexation, So you can calculate tax using below method.
Cost price = 14.5L, purchase year = 2005-06, sale price = 20L, sale year = 2010-11
Cost Inflation Index (CII) for year 2005-06 = 497, Cost Inflation Index (CII) for year 2010-11 = 711
Indexed purchase price = 14.5 * (711/497) = 20.75 L
Capital Gain = 20-20.75 = -0.75L
Its a capital loss, so no tax is payable.
Hey Pankaj :
Thanks for your Reply . Your website and your replies are very use-full.
Thanks for taking out time in replying to my query
Regards
Mani