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.
Thank U very much for your reply prompt reply.
I had bought a pieced of land for Rs. 1,22,225/- on 30.6.97. Now I intend to sell it for a total consideration of Rs. 28,20,375/-, kindly advise what amount out of the sale amount is taxable which I need to invest under section 54 to take tax advantage.
Kindly advise.
@S C Gupta
As you sold a land, Section 54F would be applicable for tax saving.
Under this section, to save tax fully, you will have to invest amount equal or more than sale consideration (Rs 28.20375 lakh).
I had purchased property on 17th April 2008 for 53,50,000/- with home loan of Rs.30,00,000/-, in joint names of my & my brother,
We repaid full home loan in February 2013, & also will be selling the flat in March 2013 for 1,50,00,000/-
What will be capital gain tax,
The amount paid as interest on home loan will it be calculated in my income & not allowed as deductions for capital gain tax ?
Please reply as soon as possible & help us in understanding the tax liability ,
Regards
@Manan
See capital gain computation below:
Purchase Year = 2008-09, Purchase Cost = 5350000, Cost Inflation Index (CII) for purchase year = 582
Sale Year = 2012-13, Selling price = 15000000, CII for sale year = 852
Indexed Purchase price = 5350000 x (852/582) = 7831959
Long term capital gain = 15000000 – 7831959 = 7168041
Long term capital gain would be divided in all joint owners in same ratio as they have in property.
Home loan interest does not have any deduction available in capital gain tax computation.
Long term gains would be taxed at 20.6% rate (including education cess)
Thanks for your reply.
Lastly I am also paying in installments for construction of a flat. Trust the current proceedings from the sale of the land can partially be also adjusted for the installments made for the flat in preceding one year from the date of sale of land as well.
@S C Gupta
It won’t be an issue until you receive possession of flat within two years of sale.
Hello Pankaj,
I had bought a plot of land in urban area in 1989 for Rs.1 lakh and am now selling it for Rs.30 lakh. It was vacant and not used for any agricultural purposes.
Can I get exemption from Capital gains if I purchase any other agricultural or Non-agricultural land within 2 years? If not, is there any other way to save capital gains tax?Thanks.
@Anirudha
There won’t be any income tax benefit if you purchase any land.
Tax benefit can be taken u/s 54F in case you buy a residential house property or construct one.
Can I buy one residential flat in Jaipur and another in some other city and then claim long term capital gain.
Also, whether cost inflation index for FY 2012-13 have been declared
@Dinesh
You can buy residential flat anywhere in India.
CII for 2012-13 has been declared and is 852.
I want to know can I buy 2 residential flat and claim LTCG.
@Dinesh
You can only claim tax benefit against a single residential house property purchase.
If alongwith the cost of property, if I pay for car parking and one time maintainence, will it also be included in the total cost of property and can I claim LTCG on the total amount.
@Dinesh
Car parking can be included but not the maintenance amount.
I have paid Rs.7.5 lacs as full amount for one flat, and the possession will be given on March 2014. I am keeping around Rs. 2.5 lacs for registeration in my saving account, and balance amount I intend to take bonds.
Can I be able to take the LTCG on the total amount.
@Dinesh
You should be able to claim deduction u/s 54/54F and 54EC.
Can I keep registeration amount of flat , around Rs.1.5 lacs in saving account, and then use it at the time of registeration on Jan 2014 or I will open CAGS account and then make payment from it.
@Dinesh
As possession of new house property would not be received before last date of return filing, you should open CGAS account and deposit amount into that.
I have come to know that we can also claim long term capital gain by paying flat rate of around 10.3% . Is it true.
@Dinesh
Flat 10% income tax rate is applicable on only some of the capital assets like debt mutual funds and unlisted stocks etc.
For gains from other assets, indexation rule can only be applied.
i have a flat and some land in my name. No other property. I’ve had both for more than 6 years.
I want to sell both and ideally purchase another flat and land in another city.
– In this scenario do I have to pay capital gains if the price of new flat and land purchased is more than the ones sold.
– If yes, then is there a way to avoid the tax, say by purchasing a larger flat/independent house (not preferred though)?
– OR by purchasing 2 flats?
@Probkid
You can purchase two flats, but you would need to execute like following.
1. Sell land first, so at the time of sale, you would only have one residential property in your name.
2. Sell flat.
3. Buy first residential flat with cost more than sale price of land u/s 54F.
4. Buy another residential flat with cost more than long term gains earned from sale of flat u/s 54.
@Probkid
There is no tax benefit available against purchase of land (unless you construct a house on it).
So if cost of new flat is more than sale consideration of land + long term gains from flat, then no income tax would be payable.
I’m an NRI(us) wanting to sell a property in India
If I gift the property to my father in law and he conducts the sale, do I need to file returns? What is his cost basis? Can he use the usual techniques to avoid paying ltcg? Does he need to hold the property for sometime to be eligible for ltcg?
@Harry
If you gift property to your father in law and he sells out property, you need not to pay taxes or file returns.
Purchase cost and year applicable to your father in law would be same as its originally paid by you.
He can use normal section 54/54F to save income tax on LTCG. He need not to hold property for three years for long term gains.
Hi Pankaj,
I purchased builder apartment 2nd floor in Indirapuram in July 2007 in 17 Lakhs.
I sold it on 29th oct 2012 on 45 lakhs.
I purchased 2nd floor on logix blossom greens which in construction right now on june 2012.
I already paid 25 lakhs to previous owner/logix so far by other saving/loan from family.
Now I have to file return.
Please guide how should I invest and save tax?
@Binod
Long term gains on Indirapuram flat sale would be around 18.8 lakh. So as per section 54, in case you purchase another residential house property for amount more than this, there would not be any income tax payable on gains.
As flat was sold in FY 2012-13, income tax returns for same would need to be filed after 31st Match 2013, by 31st July 2013.
If you are able to get possession of new flat before 31st July 2013, you can declare long term gains and exemption u/s 54 in ITR. If possession is not received by then, you would need to open capital gain scheme account and deposit some amount of gains into that.
I purchased new flat in 69 lakhs which is in construction linked plan. Need to 5 lakhs next month as next installment.
hello pankaj,
we have rented our land for sri ram auto mall ltd they have given advance for which they have deducted service tax is it applicable to advance also and how can we get that service tax by filing returns…. they wil deduct for rent also….
@Nusrath
We have little knowledge on service tax and related topics. Please post your queries on a suitable forum/website.
I have purchased a house in Mumbai in 2006 worth 28.5L including stamp duty and now planning to sale in Rs. 49L. Can you please advice me how much amount I need to invest in new house to avoid LTCG.
@Vikas
Purchase Year = 2006-07, Purchase Cost = 2850000, Cost Inflation Index (CII) for purchase year = 519
Sale Year = 2012-13, Selling price = 4900000, CII for sale year = 852
Indexed Purchase price = 2850000 x (852/519) = 4678613
Long term capital gain = 4900000 – 4678613 = 221387
As per section 54, even if you invest 2.22 lakh into new residential house property, you would save income tax fully.
Thanks Pankaj, Another query…
Hi Pankaj,
I have sold a residential flat in Mar 2011 worth Rs. 40L attracting LTCG on Rs. 19.7L hence I invested Rs. 20L in Capital Tax Gain FD Account. Later I bought a plot worth 20L in Oct 2011 and withdrew Rs. 12L from this Capital Tax Gain FD account and balance amount of Rs. 8L was reinvested in the Capital Tax Gain FD to construct the house within 3 yrs.
But now I am unable to construct the house on this plot due to personal reasons but planning to buy another residential flat by May 2013 worth 22L.
I wanted to know can I use this Capital Gain Tax FD amount of 8+ Lacs in purchasing this new property and claim LTCG without Tax.
@Vikas
If you don’t want to construct a house, but buy a already built flat, then it should be done before April 2013 (end of two years from date of sale). If you can get possession of new flat before April 2013, you can claim exemption u/s 54, else it may be denied by assessing officer.
There should not be any issue in withdrawing remaining 8 lakhs for purchase of new flat.
Thanks Pankaj for your helpful advice, May I also request you to please advice is this type of case clearly mentioned in sec 54 or was there any court ruling?
Thanks for your valuable advice.
@Vikas
Under section 54, its clearly mentioned that new residential property should be in assessee possession within two years from sale.
Hi Pankaj,
Understand that, but here I have already used 60% of the capital tax gain FD to purchase land and now since I am not constructing the house but want to use that 100% of the capital tax gain account (60% used earlier and 40% still in bank) to purchase a constructed property. Will it be OK?
@Vikas
In case already constructed property is purchased, allowed time period is already over. So in case you claim exemption u/s 54 and scrutiny happens, IT department may deny exemption and ask for tax payment.
Pankaj,
Property Sold 29th Mar 2011
Capital Tax amount invested June 2011
Land purchased from capital tax gain amount Oct 2011
Residential house planned to purchase 15th Mar 2013 (within 2 yrs of sale)
@Vikas
Sorry for earlier reply, in case residential house is purchased and possession taken before 29th March 2013, section 54 can be taken without any issue.
Hi Pankaj,
thanks for your valuable advice. I was going through article 54 and couldn’t find this partial payment very explicit. My friend who is also a small time tax consultant locally is also not very clear on this and was asking for any court ruling so that IT officer doesn’t create any issue. Can I speak to you. Please write your number to me at [email protected].
@Vikas
An amount equal or more than capital gains needs to be used into a single residential property purchase to avoid income tax fully on gains.
If cost of new residential house is more than gains (no matter how much of it has been paid from capital gain scheme account or your personal savings or home loan), you won’t have to pay income tax on gains u/s 54, if cost is less, you will have to pay 20% income tax difference amount.
Here land purchased in Oct 2011 won’t matter if you want to claim exemption against residential house.
But if you want to consider land purchase, construction needs to be done on same to claim exemption.
One thing you can do is construct a small building (may be a room) on land before March 2014 and then you would be claim benefit on it.
Hi Pankaj,
Need your advice. I have a case where
a) sold the house in Mar 11 and bought a piece of land in Oct 11 to construct the house by Apr 13.
b) sold the house in Dec 12 and bought a house in Dec 12.
c) buying a house in Mar 13 or Apr 13.
I would like to know if I buy the house in Mar/Apr13 then will I be able to claim LTCG exemption? What shall be the best sequence for me?
@Vikas
I am assuming that house sold in a and b points are two different houses.
In both the cases tax benefit can be availed u/s 54 by buying/constructing a new residential property. In case of buying a already constructed house, possession should be taken within two years from sale. In case of construction yourself, construction should be over in three years from sale.
You should show house bought in Dec 12 against Mar 11 house sale as If you buy a house after March 2013 or construction on plot is delayed, then also you would be safe.
Sorry if I have confused you..
a) Sold a house “A” in Mar 11 and bought a piece of land in Oct 11 to construct the house “B” by Apr 13 by using balance amount of capital gain FD.
b) Sold another house “AA” in Dec 12 and bought a house “BB” in Dec 12.
c) Now planning to buy a house “CC” in Mar 13 or Apr 13.
I would like to know if I buy the house “CC” in Mar/Apr13 then will I be able to claim LTCG exemption for house “AA” and “BB” ? I believe an individual shall not have more than 2 houses to claim LTCG. What shall be the best sequence for me? Please advice
@Vikas
As both the capital asset sold (A and AA) are residential house property, section 54 would be applicable for tax benefit from LTCG tax.
Under section 54, there is no condition on how many properties one may own.
If asset sold would have been any other (like plot/land, gold, commercial property, unlisted stocks etc), then section 54F would have come into picture. Under 54F, there are conditions of maximum two residential house properties.
Hi Pankaj,
I had consulted you and followed your instructions after selling off my flat in June 2009..I bought another in Jan 2010. The remainder of rs 15 lakhs I put in a NHAI before 31st march 2010..therefore before the end of the financial year. The IT authorities are harassing me by asking me why I did not put it into bonds within 6 months. How could I if I had not zeroed in on the property I was going to buy and didnt know what is going to be left over to put in bonds? Could you point to me the exact section of IT code which speaks of how capital gains can be avoided by reinvesting in property and remaining money put in bonds before the financial year end so that I can quote it to them and stop this harassment ? Thank you and best wishes.
@Sid Chopra
Income tax benefit u/s 54EC is only available if investment in capital gain bonds are done within six months of sale.
Section 54/54F and 54EC are two different tax sections and one can utilize them for tax saving.
Dear Pankaj Sir,
I have one residential house in which we are living. I had booked another Flat in 2010 and home loam was taken by IDBI. Recently I had sold a plot and IDBI loan was Partly paid by LTCG amount ( taking consideration of cost of index).
1. If I want to book another flat “what will be effect on LTCG tax benefit?”
@H S Maurya
As you already owned more than one residential house properties at the time of sale of plot, you can not entitled for tax benefit u/s 54F. You need not to pay 20% income tax on LTCG with indexation computation.
Dear Batraji
As you have mentioned “you not to pay 20% incometax on LTCG with indexation computation” is not clear to me.
The second flat is under construction and excepted to be under our possession in 2013-2014. First flat is also joint name.
Kindly advice what will I do.
@H S Maurya
If you owned only one residential house property (single or jointly owned) at the time of sale of plot, then you can claim tax benefit u/s 54F. New flat possession should be taken within two years of plot sale.
But in next three years from new flat possession, total residential properties owned by you should not increase more than two.
I have sold a flat recently in July 2012 for (50Lac) which i had purchased (5L) it in year 1990. This was under my name. I had booked another flat which is under construction and would be let for possession in 2013. This booking is under my daughter’s name and not mine however I am paying for entire EMI from my bank account.
The question is that would I be able to still save Tax?
@Shiseen
Generally section 54 exemption is provided if new property is in name of same person who got long term capital gains. But in past, some of the assessee have won cases in their favor in court where new property in name of their spouse or children. I would advise you to take a legal opinion from an experienced CA or lawyer.
Sir,my mother has a plot in her name and she wants to give the power of attorney in my name for sale purpose as she is abroad living for time being with my younger brother. if i will sell the plot after ataining power of attorney,what the tax i have to pay.moreover i,m unemployed.
thanks®ards
chigwell
@Chigwell
In case you receive the sale amount, you would need to pay tax on capital gains.
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 A would be same in which your mother bought the plot and P amount would be amount in which she bought it.
Sir
My uncle purchased a plot 25 yrs ago. From 25yrs he is the sole owner . Now he wants to sale that plot and whatever he gain from that sale amount wants to share between him and his children as their financial position is not good. he wants help his children financially. How he can do ?? IN what way?? Can he reduce his tax on capital gains.
Kindly guide him .
@Sslr
If he does not invest into new residential property or capital gain bonds, he would have to pay income tax on long term capital gains @ 20% rate.
Below is the computation for gains.
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
If his children can use gains into residential property or into capital gain bonds investment, he should first transfer property to them through gift deed and then they should sell it. In that case long term capital gains would be taxable to them and they can take tax benefit u/s 54F or 54EC.
Hi Pankaj,
My parents sold a NA plot of land in august 2012 which resulted in LTCG of Rs.15,00,000. Since the plot was jointly owned each of them now have LTCG of 7,50,000. From his share, my father bought 2 acres of agriculture land in his native place and intends to build a house on the land and use the rest for farming. The land has already been bought for Rs.5,00,000. The construction of the house will begin in May 2013 and will be completed in 8 months.
1. If he deposits the remaining 2,50,000 in a capital gains account can he claim exemption, under section 54F, on his entire LTCG (which was partly used to buy land and partly to build a house on the bought land)?
2. If my mother assists in building the house on the land, can she also claim exemption on her LTCG? To claim exemption, does the house need to be co-owned by both of them?
3. When opening a capital gains account, is it necessary to deposit the entire LTCG to claim exemption? If my mother spends 1,50,000 today, say on jewelery, and deposits 6,00,000 in capital gains account for building a house later on, how would the tax be calculated.
Regards,
Suresh Roy
@Suresh
1. Under section 54F, to save income tax fully on gains, an amount equal or more than sale consideration needs to be invested into new residential house property. So even if your father’s gains portion is 7.5 lakh, he would have to deposit unused sale consideration amount into capital gain scheme account.
2. If your mother also wants to claim exemption in same property, she should be a joint owner in property.
3. Unused sale consideration amount needs to be deposited into capital gain scheme account. The used portion can only be considered if same has been spent towards advance of new residential property being bought or constructed.
Thanks for the prompt reply.
Could you please further clarify these points:
1. Can exemption be claimed if LTCG is utilised to buy agriculture land for the dual purpose of building a residential house (a farm house that would be the primary place of residence) and farming. Does “residential house property” mean land+house and can exemption be claimed if both are bought from LTCG?
3. Does this mean that my mother would be taxed 20% on 1.5 Lakh for current fiscal year and 6 Lakh in next fiscal year (depending upon how the money in the capital gains account is utilised).
Also, what is the last date before which unutilised LTCG should be deposited in a capital gains scheme account? Is it March 31 (end of fiscal year) or July 31 (due date for filing of returns)?
Regards,
Suresh Roy
@Suresh
1. Under section 54F, if you buy land and construct house on it, exemption can be taken. Land cost + house construction cost can be considered for availing tax benefit.
2. If your mother does not want to open capital gain scheme account before 31st July, she would need to pay 20% income tax on her part of gains before 31st March. She can pay tax after 31st March as well, but late tax payment penalty may be applicable u/s 234B and 234C.
In case she opens CGAS and deposit her part of unused sale consideration before 31st July, she won’t have to pay any taxes now. Money has to be utilized before three years from date of sale of plot.
3. Last date for opening CGAS account would be 31st July.
Hey pankaj
My grandfather bought a property of rs. 5000. He transfered the same property on my dads name in 1961. Now we sold that property for rs 2.7 cr. Kindly tell ltcg tax and how to save it. Please reply on my mail if possible
@Mayank
Below is the computation method for LTCG and income tax:
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 considered 1981-82 here as CII concept was started from this year only. Purchase cost would be considered as fair market value in April 1981.
Income tax can be saved by investing into another residential house property u/s 54/54F or into capital gain bonds u/s 54EC
Hi Pankaj,
I heard that flats which are under construction & values less than 20 lakhs are not required to pay service tax, is it correct ?
@Akash
In case flat area is less than 2000 sq ft and value is less than 1 crore, service tax is applicable on 25% of transaction (12.36% on 25% value makes it 3.09% on total value).
Hi Mr Pankaj Batra
My dad bought a land for me under my name in 1997. he bought 4.60 grounds. He bought it for Rs 3,87,765 ( for 4.60 grounds ) and now the government value is Rs 40,00,000. I will be selling it for the same. and i will deposit the money in my account.
As iam moving abroad Iam planning to sell it this year. As iam investing this money in other country i have to submit the source of money and get it documented.
how much tax should i pay and do i have to pay any extra tax if i invest that money in other country. Iam totally moving out of the country. Please help me out with the figures.
Thank you
Have a goodday
Lokesh
@Lokesh
In case price of new property purchased by you in foreign country is more than selling price of land in India, you may not have to pay any taxes u/s 54F.
Section 54F is silent on location of new property bought so you can use it to buy property in other countries as well.
Hi Pankaj
I forgot to mention that the government value is Rs 40,00,000 per ground.
Thank you for your support
Good day
lokesh