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.
Related posts:
what will be long term capital gains tax rate for
1.indexation method
2.tax on total sales price
will it be 20% or it will be less
@Nusrath
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%
Hi Pankaj,
Me and my wife have capital gains to the tune of 15 lacs each and deposited in respective regular savings accounts. We intend to invest in capital gains tax savings bonds (54 ec ). We understand 6 months time is available for the same. Are we allowed to keep these Capital gains in regular bank savings accounts prior moving to 54 ec bonds issued by NHAI or REC?.
@Krish
Investment in capital gain bonds should be done within six months of gain date. Till this time, it can be kept anywhere.
Sir,
I am a senior citizen, and having a piece of land which is for residential house purpose but it is still empty, i want to sell this, worth r.s. Ten lakh the cost of acquisition is r.s. 150000 in 2004, now if sell it , then please tell me what is LTCG on this while it is empty land, i have no residential plot anywhere because i am living in a rented house.
Is a empty land is not exempted from LTCG OR STCG.
@Jai Singh
Here is the computation for long term gains and income tax:
Purchase Year = 2004-05, Purchase Cost = 150000, Cost Inflation Index (CII) for purchase year = 480
Sale Year = 2011-12, Selling price = 1000000, CII for sale year = 785
Indexed Purchase price = 150000 x (785/480) = 245313
Long term capital gain = 1000000 – 245313 = 754687
Income tax on capital gain = 754687 x 20% = 150937.4
You can save this tax fully, if you buy a residential house property for cost more than 10 lakh or invest 10 lakh into capital gain bonds.
WHEN THE CAPITAL GAINS COMPUTED ON SALE VALUE OF Rs.10.00 LACS AS Rs. 754687.00 WHILE TAKING CII INTO ACCOUNT THEN WHY DO YOU SUGGEST THAT TAX WOULD BE SAVED IF HOUSE WORTH 10.00 LACS OR MORE IS PURCHASED. WILL IT NOT BE SAVED IF HOUSE VALUE EQUIVALLENT TO OR MORE THAN CAPITAL GAINS IS PURCHSED, IN THIS CASE Rs. 754687.00.
@Anshuman
In case of sale of asset other than residential house property, section 54F applies for tax benefit.
Under this section, to save tax fully, whole sale consideration has to be invested and not only the capital gains part.
As Mr Jai Singh has sold land and not a house/flat, 54F is applied.
I own 2 flats. I am planning to buy a new one. I would be availing bank loan for the purpose Post that I am planning to sell 1 of the 2 older flats, and part repay the bank loan. What / How would be the LTCG treatment in this case ?
@Mangesh
If you sell one of the existing house within one year from date of possession of new flat and cost of new flat is more than capital gain(using indexation method) earned from old flat sale, there won’t be any tax payable on LTCG.
i have sell my property in my 2011 but till date i have not invested any wher but i looking to by some property , kindly suggest me how i can save tax on my capital gain what are ther other option for me pleas rep
@Aslam
You need to buy/construct residential house property in order to save income tax on capital gains u/s 54/54F.
Hi Pankaj,
My father want to gift me the flat.
1. Whether he or me is liable to pay any tax on this gift?
2. Please suggest whether he should gift the property in this year or the next F.Y. 2012-13 if there are any complications involoved?
3. After I receive the gift, within how much period can I sell it off and whether there would be any tax implication on this transaction?
Thanks
Puneet
@Puneet
1. There is no tax liability for anyone on gift given by father to son.
2. There is no complication involved in property transfer as gift, your father can do it in any financial year.
3. There is no lock-in period for gifted properties. You can sell flat even next day as well. But capital gain would arise due to sale of flat, you would need to compute capital gain by indexation method and 20% income tax would be payable on this capital gain.
Hi Pankaj,
Thank you so much for your valuable feedback!
1. It’s my father-in-law who wanted to gift me the flat so would there be any limit on the transfer of gift and would that be subject to any gift tax as well.
2. Also, after I sell the flat can I buy the commercial property over and above the total sale consideration? This way, I hope I can also avoid paying any capital gain tax. Please advise
3. Because I’m his son-in-law, does it make any difference if we consider his daughter for both the above two points.
Please reply
Thanks
Puneet
@Puneet
1. There would also be no tax on gift from father in law and there won’t be any limit on such gift.
2. There is no tax benefit on purchasing a commercial property. Benefit is only available for purchase of residential house property.
3. There won’t be any difference in rules, if this gift is given to daughter.
Hi Pankaj,
Left one thing in my previous question.
Is there any limit on the gift transfer?
Thanks
Puneet
@Puneet
There is no limit on amount for gift transfer between father and son.
Dear Pankaj,
Two queries.
1) How can capital gain from selling Ancestral agricultural land be saved from paying income tax. What if the whole of sale amt is used to buy another land?
2) How can capital gain from selling Commercial property be saved from paying income tax.
@Pradeep
Please read following pages for your answer:
1. Capital Gain Tax liability on sale of agriculture land
2. captial gain tax on a sale of a commercial property
I sold my flat in Jan.12 for Rs. 14 L. This flat i had purchased in 1998-99 for Rs. 3.65 L. The buyer got the flat registered for Rs. 10.12L at market value price though the entire sale consideration of Rs. 14L was made by way of cheque to me. Now i request you to let me know how to compute my long term capital gain tax and where to invest to save paying long term capital gain tax.
@Mangesh
Registered sale deed value would be considered for sale consideration value.
Purchase Year = 1998-99, Purchase Cost = 365000, Cost Inflation Index (CII) for purchase year = 351
Sale Year = 2011-12, Selling price = 1012000, CII for sale year = 785
Indexed Purchase price = 365000 x (785/351) = 816311
Long term capital gain = 1012000 – 816311 = 195689
Income tax on capital gain = 195689 x 20% = 39137.8
If you buy another residential house property for more than 1.96 lakh and possession of same is received within two years from date of sale of flat, no income tax would be payable on capital gains u/s 54.
You may also invest into capital gain bonds u/s 54EC within six months of flat sale to save income tax.
Hi Pankaj,
Thanks a lot for the clarifications. Now i would request you to reply to following:
a. As i mentioned my actual sale was for Rs. 14L but the registered value is Rs. 10.12 L. As per your reply registered sale deed value will be considered for LTCG calculation. Now do i need to pay any tax on the difference amount of Rs. 3.88 L i.e. Rs. 14 L minus Rs. 10.12L . If yes, then how to save this tax. After the sale money was received, i invested in following:
i. Opened 5 yrs Long Term FD with SBI (Tax saving scheme) in my name for Rs. 1L
ii. Deposited Rs. 98K in my PPF
iii. Opened 10 yrs FDs in SBI in the name of my mother (sr. citizen) for Rs. 4L.
Will the above investment help me in saving any tax as mentioned above.
b. To save LTCG you mentioned that i can invest in capital gains bond u/s 54EC within 6 months. Do these bonds will be available during Q1 of FY 12-13.
c. As per your calculation i have to pay Income Tax on capital gain for Rs. 39137.80. How much i have to invest in capital gain bonds to save this LTCG tax.
Request you to clarify the above. Regards,
@Mangesh
a. As such this extra amount is not accounted in this sale deal, so it would be out of gains computation and hence no tax would be payable in purview of gains.
However, if this extra amount has come to your accounts, income tax department may raise a query to explain sources for these funds. At that time, you would be in double problem as stating that it was part of sale would involve stamp duty default case.
Investments in fixed deposits and PPF won’t help you save income tax on capital gains.
b. Capital gain bonds would be available generally throughout the year. So you can purchase them even in Q1 of FY 12-13.
c. In order to save income tax fully, you would need to invest whole capital gain amount, which is around 1.96 lakh in your case.
am a senior citizen, aged 63 yrs, i have a minimum income of rs 50000 per annum from A.Y 1994-1995 SO i am not submitted any income tax return from 1995-1996 and having a piece of land which is for residential house purpose but it is still empty, i sale this on jan 2012worth r.s. Ten lakh the cost of acquisition is r.s. 7500 in 1994, please tell me what is LTCG on this while it is empty land, and if i invest rs 1000000 in 54ec bond then it is compulsary to submit income tax return ? and what is my tax liabili
@Biswajit
Your query has been already answered on http://www.socialfinance.in/questions/2369/income-from-long-term-capital-gain
Dear Sir, I want to claim tax exemption on capital gains from sale of land in Sept. 11 through purchase of house in Jan.,12 . Is the calim applicable even when new asset is financed through loan or I need to repay the loan from the proceeds of sold land to claim exemption.
Also let me know how to claim exemption on record(through I-T return filing ..? or what)
@Anshuman
You can claim tax benefit u/s 54F even if new asset is financed through loan.
There is no as such requirement for repay home loan from sale proceeds.
Exemption can only be claimed while filing income tax return.
Thanks pankaj for the reply.
In our case, buyer had split total sale value into two equal parts and paid to wife and husband as the property is in joint names. For the purpose of investment into 54 ec bonds, can we make single application clubbing both our long term capital gains. Are there any disadvantages of doing this way?
@Krish
Investment in capital gain bonds 54EC cannot be done in joint names. Single PAN number has to be provided for investment.
am a senior citizen, aged 63 yrs, i have a minimum income of rs 50000 per annum from A.Y 1994-1995 SO i am not submitted any income tax return from 1995-1996 and having a piece of land which is for residential house purpose but it is still empty, i sale this on jan 2012worth r.s. Ten lakh the cost of acquisition is r.s. 7500 in 14/12/1984, please tell me what is LTCG on this while it is empty land, and if i invest rs 850000 in 54ec bond then it is compulsary to submit income tax return ? and what is my tax liabilities? as per your ans from which year i have to submit my it return? if i unable to submit it, as some income tax practitioner advice then what to do? and how? from which previous year i have to submit the returm
@Biswajit
You would need to file return only for this year when you earned capital gains.
Hi pankaj, I have one query, I sold house in july 2011 which was bought on 2003, according to long term capital gain tax liability is of 17 lacs and tax is 3.4 lacs, I want to pay tax so whats the last date so there is no penalty.thank you.
@Dr. Pravin
You would need to pay taxes before 31st March, 2012.
Hi Pankaj
I had purchased an flat in Bangalore in Feb 2007 for 42L and I had taken 35L home loan. But the property was registered only for 19L at the time of purchase. I have also spent 3-4L on interiors and woodwork (for which I have not retained any bills ).
Now, I am planning to sell this flat for 58L and clear my home loan in full which is 32L (including closure charges). Please let me know how much property gain tax I need to pay (if any).
Also note, I have not taken any tax gain during these 5 years on the home loan, as I am out of country since last 5 years.
Thanks,
Suneesh
@Suneesh
Below is the computation for long term gains and income tax:
Purchase Year = 2006-07, Purchase Cost = 1900000, Cost Inflation Index (CII) for purchase year = 519
Sale Year = 2011-12, Selling price = 5800000, CII for sale year = 785
Indexed Purchase price = 1900000 x (785/519) = 2873796
Long term capital gain = 5800000 – 2873796 = 2926204
Income tax on capital gain = 2926204 x 20% = 585240.8
Purchase cost would only be taken as registered deed value and interiors/woodwork cost cannot be added to flat cost. However stamp duty/registration cost can be added to it.
There is no significance of home loan in this calculation.
Thanks, for quick replay. Now can you also let me know if I need to pay this tax in this year itself? As i am planning to get some other property in 2years time.
@Suneesh
You don’t have to pay income tax immediately if you are planning to buy another residential house property.
You would need to invest gain amount into capital gain scheme account before 31st July, 2012 if possession of new purchased residential house property is not taken by that time.
This would provide you another two year time to get possession of new property or three years in case of construction of house.
Hi Iam Mahek Kakkar. I have puchased flat for 1586000 in 2010. I got 100% loan on said property. Now I am selling this flat for 23 lacks and I am investing this money in other property. pls advise me how much tax I need to pay.
@Mahak
As you are selling flat before end of three years of ownership, this would be short term capital gains.
There is no tax saving method available for short term gains. Whole gain (7.14 lakh) would be added to your taxable income and taxed as per your slab rates.
Whether tax benfit u/s 54F is available to a individual if he sale a open plot and from the sale consideration he purchases two residential house property at two different location and he do not own any house property at the the time of transfer.
@Anand
Tax benefit u/s 54F is available only against a single residential house property. If you buy more than one property, you can only claim against one of them.
sir, if i invest rs 850000 in 54ec bond then it is and balance in f.ds then what is my tax liabilities?
Read more: http://www.pankajbatra.com/india/how-to-save-capital-gains-tax-ltcg-when-selling-land-plot/#ixzz1mcnpHne1
@Biswajit
Purchase Year = 1994-95, Purchase Cost = 7500, Cost Inflation Index (CII) for purchase year = 259
Sale Year = 2011-12, Selling price = 1000000, CII for sale year = 785
Indexed Purchase price = 7500 x (785/259) = 22732
Long term capital gain = 1000000 – 22732 = 977268
Income tax on capital gain = 977268 x 20% = 195453.6
Invested Amount = 850000
Non-exempted capital gains = 977268 *(1-850000/1000000) = 146590
Income tax on non-exempted capital gains = 146590 x 20% = 29318
As total income this year including non exempted capital gains would be less than 2.5 lakh (non-taxable range for senior citizen), there won’t be any income tax payable. But you would need to file income tax return to claim these benefits.
sir,
i have a commercial property in my [HUF] firm purchased in 2005 and no other property in this firm. now i want to sale the same. kindly help me in knowing the tax implication on 3 situations :
1] I want to buy a bank rented residential property .
2] or residential property [vaccant]
3] or if i buy commercial property.
If i sale my property this year and i have some capital gain, what is the tax implication .
@Bunty
You can save income tax on capital gains if residential house property is bought. This benefit is not available for commercial property.
If you sell property, you need to compute long term gains with indexation benefit and 20% income tax would be payable on this gain.
Whether tax benefit U/S 54F available If Husband and wife already own one property in joint name. And they have sold a plot which was also in joint name with 50/50 share holding. And the proceeds of plot is divided 50/50 and each one of them buy one property in individual names from thier respective shares from the proceeds of land. (I.e. husband buy one property and wife also buy one property).
@P Kumar
Tax benefit would be available u/s 54F if one does not own (either single or joint) more than two residential house properties at the time of sale of plot.
In your provided case, it would be applicable.