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.
This is a factual account. Every date and quote below is from written correspondence I…
Every year around July–August, the same ritual: open the Income Tax Department's offline ITR utility…
In my previous update on cross-border investing, I broke down how I secured a zero…
In my last finance update, I documented the exact timeline of executing my very first…
Introduction: Most bank customers accept a credit card rejection as "final." But what happens when…
After spending quite a few days researching platforms and figuring out the best way to…
View Comments
Hi Pankaj, I have bought a piece of residential plot/land in year 2000, which I wish to sell now (in FY 2011-12). Is tax rate 10% without indexation and 20% with indexation on capital gains. I understand that after April 2012 (when DTC comes in force) it would be added to income (after indexing the cost) which would mean 30% for my case where as this year it would be 20%. Am I correct in my understanding? Regards,Sunil
@Sunil
Only indexation rule will apply here. Income tax is 20% on capital gain computed with indexation as of now.
After DTC, the whole capital gain will be added to income and taxed as per tax slab rates (max 30%).
hi, i have a query. my father has a property in goa(purchased in 1990) and a residential flat in mumbai. He wishes to sell the goa house
and purchase 2 flats in mumbai.
1) Can he claim LTCG on property of higher value?
2) If above is true at what rate, what are the tax implications for rest of the amount (at what rate it will be taxed.?
3) Can he save tax by buying a house in my mothers name or any childrens name?
4) If he sell it in FY2012..then till when he can postpone buying the new house?
5) Also can he earn any interest etc till he postpones purchase of the new house?
what is the best possible way he can save tax in a situation like this..thx for your time and appreciate your comments.
ps :i had asked this query partly earlier..but had more doubts..
@Sandeep
1. Yes, he can claim tax exemption on LTCG if he buys a new flat/residential property of value more than the gain earned.
2. Only one property needs to be bought for getting exemption. If new property price is less than gain earned then tax has to paid @ 20% on the difference amount.
3. No, tax cannot be saved if property is bought at mother or children name.
4. New property has to be bought within two years of sale or a new house has to be constructed within next three years.
5. Whole gain amount has to be invested into a capital gain account until its used for buying new house. It will earn savings bank interest on the deposit.
capital gain tax on the below amount
Date of purchase land & building on 14.06.1975 of Rs 500000 and sale of land & building on 06.05.2011 of Rs. 10000000.calculation of capital gain tax.
@Ashim
In order to calculate capital gain tax, Cost inflation index (CII) for 1975-76 and 2011-12 is required.
But CII was started from 1981-82, so you may assume a fair value at 1st April, 1981 in order to compute capital gains.
Also CII for 2011-12 has not been declared yet, so below calculation is done with CII of 2010-11 and an assumed value of 7 lakhs in 1981-82.
Purchase Year = 1981-82
Purchase Cost = 700000
Cost Inflation Index (CII) for purchase year = 100
Sale Year = 2010-11
Selling price = 10000000
CII for sale year = 711
Indexed Purchase price = 700000 x (711/100) = 4977000
Long term capital gain = 10000000 - 4977000 = 5023000
Income tax on capital gain = 5023000 x 20% = 1004600
HI Pankaj,
I bought a land in a gated community, directly from the property developers in 2004 with my savings. Subsequently I built a villa on it by taking a composite loan (land + construction). The construction got completed in Apr'07. I intend to sell the villa now due to appreciated value of the property.
My question is : How is the purchase price of a constructed property arrived, to calculate capital gain.?
@Navneet
Following computation will be used in your case:
Purchase Year of plot = A
Purchase Cost of plot = P
Cost Inflation Index (CII) for purchase year, A = X
Construction Year = C
Construction cost = T
CII for construction year, C = Z
Sale Year = B
Selling price = Q
CII for sale year, B = Y
Indexed Purchase price = P x (Y/X) + T x (Y/Z) = R
Long term capital gain = Q - R = S
Income tax on capital gain = S x 20%
Hello Pankaj,
Please find the construction details along with expenditure detail year wise.
-------------------------------------------
1st phase of construction -1992-93-300000
2nd phase of construction -2000-2003-500000
3rd phase of construction-2005-2006-800000
---------------------------------------------------
Kindly let me know if need any further information.
Regards,
Naveen
@Naveen
Below is the calculation for long term gains:
Purchase Year = 1992-93
Purchase Cost = 232000
Cost Inflation Index (CII) for purchase year = 223
Phase 1 Construction Year = 1992-93
Phase 1 Construction Cost = 300000
Cost Inflation Index (CII) for Phase 1 Construction year = 223
Phase 2 Construction Year = 2002-03
Phase 2 Construction Cost = 500000
Cost Inflation Index (CII) for Phase 2 Construction year = 447
Phase 3 Construction Year = 2005-06
Phase 3 Construction Cost = 800000
Cost Inflation Index (CII) for Phase 3 Construction year = 497
Sale Year = 2009-10
Selling price = 2010000
CII for sale year = 632
Indexed Purchase/Construction Cost = 232000 x (632/223) + 300000 x (632/223) + 500000 x (632/447) + 800000 x (632/497) = 3231970
Long term capital gain = 2010000 - 3231970 = -1221970
There is actually a capital loss and not a gain here.
Hi Pankaj,
Thanks a lot for helping with the calculations. could you help me with another question do i have to declarae any expense document for these investements while filing the income tax .
Additionally till october 2006 the property was on my fathers name...than tranferred on my name at the same cost i.e 232000 with a stamp duty of 23000.
Regards,
Naveen
@Naveen
In the capital gain section, you will have to provide expense under expenditure on transfer section for stamp duty paid. Its under CG-OS sheet in ITR 2.
I want to know, I have sold my residential house and invest the money in booking of builder's flat and still not get the possession and due to some sort of financial needs, I want to cancel the booking and just let me know whether the cancelation of booking amount will cost me the capital gain and the details are below
Date of sale of residential house 01/01/2009
Date of booking of builders's flat 29/04/2009
Date of cancelation of builder's falt 15/05/2011
Sorry vijay, I am not providing a solution. Just wondering why would you let the booking amount go. I guess you would have paid more than the booking amount. If I not mistaken, you can sell the flat to someone n get the money back.
@Vijay
Its already two years passed since you sold old residential house. To save income tax on capital gains, one must invest in another residential property within two years of sale. One can also construct a new house within three years of sale.
So either you pay income tax on capital gains now or get a house constructed on land within next 7-8 months.
Dear pankaj sir, i sold a plot 2 days back in Rs. 45 lacs and want to invest whole amount within next seven days by purchasing one new flat in ansal township after giving full down payment of 45 lacs ,but above mentioned flat will be ready for possesion and registry after 3 yrs, please tell me that if i invest whole 45 lacs with in one year by giving downpayment for flat and get possesion and registry of flat after 3 or 4 years will i be exempted from capital gain or possesion and registry should also be completed in one year time after sale, Jamshed.
@Jamshed
If you don't get a new house before end of three years from sale of old house, exemption won't be available on capital gains.
Hi Pankaj,
I purchased a flat in sept 1991 and planning to sell now . My quiary is on calculation of LTCG. pl clarify whether the following aspects can be consider for arriving indexed price of purchase.
1. The cost of undivided portion of the land
2. The construction cost paid by me to the builder.
3. The registration fee for the undivided portion of the land and value of court stamp paper
4. Cost of Electrical connection paid to the builder separately.
5. Cost of water and sewerage connection paid to the builder separately.
6. Cost of car garage purchased separately from the builder
Please also clarify whether i can include the following under improvement activity to arrive indexed price of purchase of flat.
1.Cost of wood work done in the flat(after construction)
2.Fitting of safety gate and grills for the balconies( done after 5 years)
3.Cost of White washing and painting done on every 5th year.
4. Cost of fixing of Modular electrical switches.(after 6 years)
5. Cost of new bore well and change of new lifts .
6. MCH Property tax paid annually.
7. Monthly maintainence charges paid to the Apt. welfare association.
8. Cost of 2 window air coolers fitted in the flat .
Regards,
N.Krishnamurthy
@N.Krishnamurthy
You can include 1,2,3 from first set, but nothing can be added from the second list.
Dear sir,
I purchased a plot in 2002 for Rs.120000 and reg. expence of Rs.13000.Now on April 2011 ,I sold it for Rs.168000/-. Kindly let me have the tax implication and the exemption i can get if I go for Rs.2000000/- worth flat.
@Parthasarthy
In order to save income tax on long term capital gains arising due to sale of plot, you can invest whole consideration amount (selling price of plot) into a residential property within 2 years of sale of plot. But you should not own more than one residential property at the time of buying new flat.
1) Can i deposit the Capital gain in any of my Savings bank accounts?
Is there any special accout required to deposit Caital Gain amount until the amount is invested in new property?
2) I am planning to construct house using Capital gain money. in this case, should I produce any bills / receipts while submitting my income tax returns to show the construction cost. Please clarify
@Sushen
1. In you want to buy another property to save tax, you will have to deposit capital gains into capital gain account in the mean time. It can be opened with any nationalized bank.
2. Income tax return does not require any documents to be attached as proofs. However while assessment, income tax department may ask for proofs of investments.
I want to know, I have sold my residential house and invest the money in booking of builder’s flat and still not get the possession and flat is under construction and due to some sort of financial needs, I want to cancel the booking and want to get back the entire booking amount of 21 lacs and just let me know whether the cancelation of booking amount will cost me the capital gain and the details are below
Date of Purchase of residential house 03/2003 worth Rs. 850000
Date of sale of residential house 01/01/2009 worth Rs. 2600000
Date of booking of builders’s flat 29/04/2009 worth Rs. 2100000
Date of cancelation of booking of flat 15/05/2011
you are kindly requested to pls guide me in this dicy situation and would be thanksful a lot.
@Vijay
As two years have already finished and you have not got possession of new house, income tax on capital gains will have to paid now.
Else you can get a house constructed before Jan 2012 to save tax.