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:
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 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.
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Pankaj -- Can you clarify Satish's last question in mail thread:
http://www.caclubindia.com/forum/timeline-fior-longterm-capital-gains-tax-on-house-45334.asp
I have similar query and he has explained my situation.
Sachin (from Tribal fusion)
Hi Pankaj,
We own two flats and will be selling a vacant land property. The second flat has been bought recently and the EMI will begin only on April 26th 2011. The registration of the land property is on April 13th. Please advise if we can utilize the Capital gain from the land property to pay towards the second flat in order to avoid the tax on the Long Term Capital gain. Thanks.
@Divya
Under section 54F, if you buy a new house from sale of old land property (between time frame of before one year of sale and two years after) and don't own more than one house at this time, income tax exemption will be applicable.
Hi Pankaj,sold a res property in february 2011. have purchased an apartment in March 2011. Paying installments to the builder (uptill 2013). When do i file my income tax for capital gain? i.e. July 2011 or July 2012? Should I invest the amount in Capital Gain Account Scheme before July 2011 or July 201? Would be helpful if you could reply.Thanks
@Sunny
You will have to file income tax return before 31st July, 2011.
And capital gains have to invested into Capital Gain account scheme before filing return.
What happens if the property sold is agricultural land? Can I still save tax in the above mentioned way? Where do I keep the sale proceeds of the land during the period in which I construct a house?
@S.M.Gupta
Your land will not be counted as capital asset if Land is outside the jurisdiction of a municipality area or not even within eight kilometers of municipality area. In the above case, there won't be any income tax liability on sale of land.
But if land falls under urban area, long term capital gain will apply here and a 20% income tax is payable on capital gains with indexation calculations.
You can still save income tax on this sale under section 54F, 54B or 54EC.
You will have to keep capital gains into Capital Gain account scheme.
Dear Pankaj,
I had bought a flat on Jan 2010 n wish to sell it this year. The price at which i had bought was at 17lacs (flat cost) + 1.5lacs (registration cost). I intend to sell it at 31lacs, hence can u please let me know the tax that i would need to pay.
@Sanober
As you are selling plot before three years, it will be considered as short term capital gain.
Gain amount in your case will be 31-18.5= 12.5 lacs.
This gain amount will be added to your taxable salary and will be taxed as per your tax slab (most of it will be taxed at 30% rate).
Hi Pankaj,
Very Insightful and Useful Info on this post.
My facts:
Me frm Mumbai
Got House 1 : in mine and Spouse name (2008)
Got House 2 : in mine and Spouse name (2010 May)
Got House 3 : in mine and Mothers name (2010 Sept)
Looking to dispose House 3 : and acquire NEW House 4 :
Numbers : House 3 is 27 Lacs Agreement Value and House 4 is 50 Lacs
Fund : Both r frm owned Funds House 3 as well as House 4
Question : STCG how to reduce or save as house 4 is a logical progression in investment holding
@Sid
As House 3 is being sold before completion of three years, gains on it will be considered as short term capital gains.
There is no-way to save income tax arising on this gain. Whole of this gain will be added to your and your mother's taxable income (in same proportion as ownership) and taxed at your slab rates.
dear sir, kindly advise. i bought plot in indore in 2009 june for 1000000 if i sell it today i get 1600000. can i buy another plot with this amt without paying tax or do i have to pay taxes. if i have to pay taxes what is the amt. thank u. madhu
@Madhu
If you sell your plot before June 2012, it will be considered Short term gain and whole gain will be added to your taxable income and will be taxed as per slab rates.
Around 6 lakhs will be added to your year's income.
Hi Pankaj,
I bought a residential apartment in 2004 for 9.5L (including stamp duty and rego). I moved overseas in 2007 and now an NRI. I am planning to sell my flat for 42L.
Do I have to pay any tax on LTCG even when I am not a Indian citizen now? If yes, how much?
@Raj Singh
You will have to pay income tax on capital gain even if you are not a Indian citizen.
Please find computation of income tax arising on capital gain. Please note that sale year has been considered as 2010-11 as Cost inflation index (CII) has not been notified yet for 2011-12. Actual gain for 2011-12 will be somewhat less than what is computed below.
Purchase Year = 2004-05
Purchase Cost = 950000
Cost Inflation Index (CII) for purchase year = 480
Sale Year = 2010-11
Selling price = 4200000
CII for sale year = 711
Indexed Purchase price = 950000 x (711/480) = 1407188
Long term capital gain = 4200000 - 1407188 = 2792812
Income tax on capital gain = 2792812 x 20% = 558562.4
Hi Pankaj
I have sold a plot for 28 lakhs and now to save long term capital gain I am investing the whole amount(as it a plot) in buying a flat . But the flat which I hae brought is in CLP plan so until july 31 I would pay 20 lakhs to he builder . Rest 8 lakhs has to be paid as per construction . I have not opened any captial gain account so can I pay the remaining money to builder @ construction . Also In that case hope to capital gain is imposed on me .
@Nitin
If whole consideration amount is not used before filing return, then a capital gain account will have to be opened and payment to the builder will have to be paid from that account.
Hello Pankaj,
My father purchased a residential (semi finished ) property at a cost of 2.32 Lac in 92 on loan from his office died in 2000.Till Dec-2006 property was on his name after that it was transferred on my name on the same price 2.32Lac. And 35 th expended on stamps fee and all. than in June-2009 sold it for 2010000.Was having LAP against this house of 8 lac's,which is cleared from this amount.During 92-2006 invested around 10 lac's in construction as it was semi-constructed (having only ground floor)
total area was 133 SQ.M current rate is 9000/sqm
How to calculate LTCG on this.Please guide me..
Regards,
Naveen
@Naveen
For calculating capital gain and income tax, further construction cost and years is also needed.
Hello Pankaj,
Please find the construction
1st phase of construction -1992-93
2nd phase of construction -2000-2003
3rd phase of construction-2005-2006
Regards,
Naveen
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Pankaj Batra says
@Naveen
For calculating capital gain and income tax, further construction cost and years is also needed.
@Naveen
Along with year of construction, please also provide the amount spent in these years.