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, last month only i bought 1 bhk flat for 20 lakhs, flat possession is 2012 end .but now i got transfer , so, i want to sell the flat after construction work finish.i hv no idea, what to do, if i m selling this flat after possession the falt price ll come 22 lak only, can u tell me some suggession? thanks
@Meena
If you sell flat before completion of three years from date of transfer (registration) then whole gain (2 lacs in your case) will be added to your taxable income. It will be then taxed as per your slab rates.
Dear Sir,
I had purchased a flat in Mar'07 (Registration took place) and I received possesion letter from Builder in Mar'09. I sold this flat in July'10. Could you please tell me whether the profit will be calculated as STCG or LTGC?
I checked on many websites and with few CA also. But I get mixed answers. Few consider date of purchase for calculation, others consider date of possesion.I am really confused. Could you please provide any reference which date should be considered? That would be very very helpful.
@Sachin
It can be treated as LTCG. As capital asset was registered in your name in Mar 2007.
As per law, date of registration is ideal proof for transfer.
But people consider possession or registration dates as per their convenience (whichever is earlier). There have been numerous cases where court have ruled out in favor of individual because of circumstances where registration could not be done.
sir,
For schemes like CGEWHO (central govt housing) what is date of starting capital gain. Schemes are announced and payments are made years before actual deed and position. what is date for capital gain calculation.
asok
@Ashok
Registration or possession date should be used for capital gain calculations.
But there have been few court ruling which have even taken allotment date as starting year.
Dear Pankaj,
I have booked a flat which is still under construction in Mar 2009,I am paying instalments as per construction stages.I have paid about 25 lakhs so far.The flat will be ready only by Oct 2012.Suppose I sell the flat for 36 lakhs today,How is the short term capital gains calculated? Will I save tax if I sell the flat in Dec 2012 after I take possession / registration? Pls Advice
@Ravi
Even if you sell in Dec 2012 after possession/registration, it will be considered short term gain (STCG).
Whole gain will be added to taxable income and taxed as per income tax slab rates.
I purchased a DDA flat in 1984 for RS.110000/- which I sold in 2010 for RS. 6 lakhs. In addition to above i inheritated a parental property in 2000 and sold it for RS. 22 lakhs in which my share was Rs. 11 lakhs. The property was constructed in Jaipur by my father in 1982. I have now purchased a group housing society flat in delhi for RS. 31 lakhs for which my son took a housing loan of RS. 20 lakhs from the bank. The property is registered in my name. Please illustrate how to reflect all these transactions in ITR and which form will be used for filing the ITR return. In addition to cost of flat i have paid registeration fee of Rs. 1.20 lakhs .
@D.N.Virmani
There are two properties you sold.
On first one (DDA flat) actually there is an capital loss incurred. Please refer to below computation:
Purchase Year = 1984-85, Purchase Cost = 110000, Cost Inflation Index (CII) for purchase year = 125
Sale Year = 2010-11, Selling price = 600000, CII for sale year = 711
Indexed Purchase price = 110000 x (711/125) = 625680
Long term capital gain = 600000 - 625680 = -25680
For computation of capital gain from inherited parental property, construction/land cost of property is required.
But having said that, as you already bought a new flat for 31st Lakhs, which is more than your share received in parental property. So there won't be any income tax on capital gains.
You will have to fill ITR 2 and you should use section CG-OS sheet in the file.
Registration fees can be included in purchase cost of new flat.
I got a Property from my grandfather inheritance. My grandfather purchase this property in 1962. I have sold this property under my mother and self name in worth Rs 61,00,000. I have also purchased a new flat worth Rs 35,00,000. in the joint name. Please help me with my capital gain and the consequence of not depositing the balance amount in the long term capital gain account.
@Sunny
In order to compute capital gain. Some more information is required.
What was approximate fair market value of property on 1st April, 1981.
once we know that below computation can be used to compute capital gains and income tax. This is just a sample and not actual.
Purchase Year = 1981-82
Purchase Cost = 400000
Cost Inflation Index (CII) for purchase year = 100
Sale Year = 2010-11
Selling price = 6100000
CII for sale year = 711
Indexed Purchase price = 400000 x (711/100) = 2844000
Long term capital gain = 6100000 - 2844000 = 3256000
Income tax on capital gain = 3256000 x 20% = 651200
In case cost of new flat purchased is more than the long term capital gains, there is no income tax on LTCG.
If this gain is not used before filing of income tax, then it has to be deposited in capital gain account scheme.
Hi, thankyou for your answer. The problem is that I am not aware about the fair market value in 1980-81 of the property. What should I consider the value. While selling the property the buyer took out the goverment value as Rs 61,00,000 and he made registry on it. Whould you be able to find out the approx value of the property by considering Rs 61,00,000 as the currect goverment value.
@Sunny
You can consider approx value in 1980-81. It can be assumed based on ongoing rates in same area on that year. Any transaction that happened in that period may help.
You may contact office of registrar for that too.
i have got a capital Gain of Rs 50 lakh by selling a flat in delhi , can this amount be inversted in a foreign country , for avoding the capital gain tax.
@Rajiv
To save income tax, this amount must be invested in India for a residential property.
Many thanks for your valuable reply to my query which has gone a long way to assess my tax liabilities. This portal is really very helpful for people like me. however a doubt still remains to be clarified. Under which columns the purchase cost of new property and computed capital gains are to be shown. Please mention the column nos. of ITR-2
@Devendra
Use sheet CG-OS to provide LTCG related data. Use B2 section under it.
Use B.2.d cell for providing exemption under 54, 54F/54EC.
i incurred capital gain of 26 lacs on selling property in jun 2011. I repaid loan of rs 12.5 lacs from this amount and was left with 13.5 lacs. i am to take posession of new flat costing about 40 lacs in Aug 2011 for which i have taken 25 lacs loan from other bank and paid 5 lacs from my own funds. i have to pay 10 lacs more before posession. My questions are
1. can i keep the remaining 3.5 lacs without paying tax.
2. can i continue the full loan of 25 lacs on my second house without repaying
@Himendra
I am assuming that property sold by you is a residential house/flat and not a plot or commercial one.
In your case, you have bought a new flat for value more than capital gains within two years of sale of old property. So under section 54, you won't have to pay any income tax on capital gain incurred on sale of old property.
You prepay loan or not, capital gain has no effect on that.
Dear Pankaj,
I am selling my fathers 20 years old flat for Rs.20 lacs and investing the amount in a new flat. (New flat on the name of me and my father) . Will I have to open a capital gain savings a/c in SBI to pay for a new flat? I mean the fund have to be routed throgh secial Capital gain a/c or to be given to the builder directly from regular savings a/c. Please guide.
@Santosh
If you don't buy new flat before filing of income tax return, then same money has to be put into capital gain account scheme in a nationalized bank. In that case amount of purchase will be paid to builder/seller from this account.
But if you selling flat and buying new one immediately, then you need not to open a capital gain account.
Dear Pankaj,
Thanks a lot for your instant and valuable reply.