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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Dear Pankajji, thank you for your expert advice to people for better understanding of IT rules with regard to Capital Gains. In my case I am planning to sell off a vacant residential plot allotted by Co-op Society on 26.11.95 and registered on 05.08.05. I have paid a sum of Rs.53332/- over a period of 10 years. The sale price would be Rs.13 lacs. What would be LTCG on the deal. I have booked a flat for Rs.65.00 lacs and the construction would be by June 2013. Presently I am residing in my own flat at Delhi and and planning to sell for Rs.50 lacs. Kindly let me know both the sale proceeds invested in a flat booked which is under construction qualifies from IT.
the newly booked flat is registered in my name alongwith my wife,& daughter because of my age criteria. Pl advice
@Diwaker
Below is an indicative computation for LTCG calculations (CII for 2011-12 has not been declared so assumed as 800):
Purchase Year = 2005-06
Purchase Cost = 53332
Cost Inflation Index (CII) for purchase year = 497
Sale Year = 2011-12
Selling price = 1300000
CII for sale year = 800
Indexed Purchase price = 53332 x (800/497) = 85846
Long term capital gain = 1300000 - 85846 = 1214154
Income tax on capital gain = 1214154 x 20% = 242830.8
Under section 54F, To save this income tax, you will have to buy a residential property for 13 lacs (your share) or more within two years of sale. As you already bought a flat for 65 lacs, you can avail tax exemption but possession and registration of flat must be done before completion of two years from sale. But there is a condition for exemption that you should not own more than one residential property at the time of buying new flat.
If you sell another flat too, then you can buy a flat for value (value of your share in flat) more than capital gains from flat + sale proceeds of plot to save income tax. Possession of new flat must be done before completion of two years from both plot and flat.
Dear Pankaj ji
I had sold an ancestoral property this year for 1.1 crore. I n order to save capital gain, I have invested this money in new properties. But I am left with 20 lacs. If I give this money to my sister as gift, can i safe capital gain tax?
@Surinder
Income tax cannot be avoided by gifting money to somebody else.
I have purchased plot Rs.90,000/- in 1998. In 2005 we have build home at the construction cost of Rs.6,00,000/- on that plot. Now this year 2011 we sold it Rs.25,00,000/-. so my question is what is the capital gain tax i have to be pay. How can i save that. Can I purchase agriculture land from that gain. Thanks
@Sandeep
Below is an indicative computation of capital gains (please note that CII for 2011-12 has been assumed as 800, as it has not been declared yet)
Purchase Year = 1998-99, Purchase Cost = 90000, Cost Inflation Index (CII) for purchase year = 351
Construction Year = 2005-06, Construction Cost = 600000, Cost Inflation Index (CII) for Construction year = 497
Indexed Purchase/Construction Cost = 90000 x (800/351) + 600000 x (800/497) = 1170923
Long term capital gain = 2500000 - 1170923 = 1329077
Income tax on capital gain = 1329077 x 20% = 265815.4
To save this income tax under section 54, you can buy another residential property for purchase amount more than 13.2 lacs within next two years. Agricultural land purchase won't be allowed for exemption in your case.
You can also save tax by investing capital gain bonds, under section 54EC.
Hi Pankaj ji,
I have sold my residential land in Nov 2010 for 9.6 lakhs ( Purchase price was 43000 in 1992).I have booked a flat which costs close to 59 laks and paid 2 installments worth 11 lakhs.I dont have any other property in my name.The Flat will be completed in June 2013 do i qualify for Capital gains exemption.
Also do i need to indicate this transaction in my income tax filing for 2011.
Rgds
@Gopal
As you will get possession of new flat in June 2013, which is after two years of sale of land, you won't be eligible for tax exemption.
You will have to pay income tax on this gain and show in income tax return.
In case of purchase of new property, it has to be only your name right? Does the possession come into picture or is it the sale agreement date after which the flat is under your name?
@Ghanshyam
New property has to be in your name (jointly or single owned). You must get possession of new residential property and registration in your name before end of two years from sale of old one.
Hmm...What if the possession date is pushed forward or delayed by the builder so it goes beyond the 2 years limit, but you have already completed the registration process?
@Ghanshyam
If possession is not delivered but registration has been done, it can be considered for tax benefits.
Thanks Pankaj! That is what I wanted to confirm.
before end of two years from sale of old one... two years means Two Financial Years to be considered or 24 months from Sale Date to be conisdered ??? For e.g. if old house is sold on 02nd May 2011, then new house to bought/regd/possession should be taken before 02nd May 2013 or cut-off date is end of FY 2013-2014 i.e. 31st March 2014 ???
@Vikas
Two years is from date of sale of old property.
if old one is sold on 2nd May, 2011, new property must be bought by 2nd May 2013.
thx a lots... achaa and lets say Old House is sold for 35L and new house's (which is currently under construction, possession in 18 months) Regn Agreement amount is of 25L and 2.50L are towards Elect Board+Society Main Fund+Regn/Documentation Chgs+Service Tax Charges which are to be paid at the time of Possession and expenses amtg to 2L will be incurred by us for interiors+modification+p.o.p+paint shade as per our choice selection, this amt also to be paid to the interior decorator at time of possession only. So, what will be my LTCG ? 35L-25L-2.50L-2L = 5.50L ? (Indexation is ignored for convience to calc.)
@Vikas
You will have to compute long term gains on old house which is being sold.
If old house is being sold after keeping for atleast three years, then long term capital gains (LTCG) will be = Selling price - Indexed cost of house. (say 35L - 10L)
To save income tax on this capital gains, a new house should be bought with this gain amount.
You can include registration, documentation charges in the purchase cost but not the other costs mentioned.
New house cost has no significance in computing long term capital gain of old house.
oops i mis stated my query...i meant to ask tht LTCG is 35L on sale of old house. I have booked a new flat in new society which is currently under construction, for 25L and 2.5L is to be paid for Elect Board+Society Maintenance Fund+Regn/Documen Chrgs+Service Tax, 2L for alterations/modifications to the new house structure. This amt of 2L wudnt be shown in the Regn Agreement coz these things Developer said he wudnt do but we have to do on our own when possession is in its final stages.
The Old House is sold on 02.05.2011 and 25L for new flat is paid to the Developer in June'11. Balance 2.5L & 2L to be paid at the time of possession.
Now can i say that cost of New House is 25+2.5+2 = 29.5L, which can be claimed for exemption of LTCG on Old House ? i.e. LTCG on Old House = 35L Less Amt invested in new house 29.5L i.e. 5.5L ?
In my case, what will be the cut-off date to buy NHAI/REC Bonds to claim exemption.
@Vikas
In the cost of new house, registration cost and modification cost for structure changes can be added, but not the society maintenance and electricity board payment.
You will have to pay tax @ 20% on remaining amount (35-25-2-registration cost).
The cut-off date to buy capital gain bonds is six months from sale of asset.
thx a lots for ur replies and helping me solve my queries. :)
I have residential house purchased in 2005 for 16.5L. According to circle rates presently the value is 48L. I am getting 26 L offer for the same. I will buy new flat of which posession is due in Aug 2011 and cost is 40 L. What happens if first property is sold below circle rates. Does it have any implications on the seller? Will i pay LTCG?
Please let me know in case of Group Housing Societies whether the CII applies from the date of allotment by the Development Authority/obtention of No Due Certificate from Society/possession? What is the implication If the lease hold is not carried out and remains under the orginal membership certificate by way of Share Certificate. Does this have any implication of CII if the registration is done much much later/or not done at all
Regds, Diwakar
@Diwakar
In case registration is not done for some unavoidable reasons, then possession date can be used for CII.
However there are cases where allotment has been considered for same after assessee filed a court case.
@Himendra
Capital gains will be computed as per circle rates.
Below is an indicative capital gain computation (CII for 2011-12 has not been declared yet and assumed as 800):
Purchase Year = 2005-06, Purchase Cost = 1650000, Cost Inflation Index (CII) for purchase year = 497
Sale Year = 2011-12, Selling price = 4800000, CII for sale year = 800
Indexed Purchase price = 1650000 x (800/497) = 2655936
Long term capital gain = 4800000 - 2655936 = 2144064
Income tax on capital gain = 2144064 x 20% = 428812.8
As you are buying a new flat with price more than 21.44 lacs, there won't be any income tax on capital gains.
Hi Pankaj,
I am planning to book a flat in an under construction building. Does the purchase date start from time of registration or when I actually get possession?
For eg. I pay the booking amount and the 10% of the flat cost to the builder this month and then register it by August 2011. The possession is in Dec 2013.
Which one is counted the purchase date?
@Raj Singh
You can treat date of registration as purchase date, when property is actually transferred in your name.
what if the assessse is selling 1/4th of the long term capital asset , i.e one floor only( being a residential house) and 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) ...?
@Kanika
If only a part of long term asset is sold, then capital gain computation will be done only for that part.
Same rules as per section 54 applies here as well. If you buy another residential property within next two year or within one year before, income tax exemption will be applicable.
i purchase in 2002 one plot 70000rs i sold 6lakh in 2010
1 what is the time limit of reinvestment in new plot
2 what is the time limit of investment bond
3 how many amount of tax
@Basant
Below is tax computation:
Purchase Year = 2002-03, Purchase Cost = 70000, Cost Inflation Index (CII) for purchase year = 447
Sale Year = 2010-11, Selling price = 600000, CII for sale year = 711
Indexed Purchase price = 70000 x (711/447) = 111342
Long term capital gain = 600000 - 111342 = 488658
Income tax on capital gain = 488658 x 20% = 97731.6
In order to save this income tax, under section 54F, the whole selling price has to be invested again into a residential property (Not a plot) within two years of sale or it can be within one year before sale. Also a new house can also be constructed within three years of sale. But there is a condition for tax exemption, one should not own more than one residential property at the time of buying new one.
Tax can also be saved, under section 54EC by investing whole sale consideration amount into capital gain bonds within six months of sale.
My father constructed a house in 1987 for 5.5 Lac (including land price). He is now planning to sell it and buy two apartments in the same complex for around 1.5c. The amount which he would be getting by selling the property is the same 1.5c. My question is, will there be in capital gain tax? Can he buy one property on my name and the second one on his name? Can he purchase the apartments in the same complex?
@Akash
Below is an indicative computation of income tax.
Purchase Year = 1987-88, Purchase Cost = 550000, Cost Inflation Index (CII) for purchase year = 150
Sale Year = 2011-12, Selling price = 15000000, CII for sale year = 800 (has not bee declared yet, assumed as 800 based on historical records)
Indexed Purchase price = 550000 x (800/150) = 2933333
Long term capital gain = 15000000 - 2933333 = 12066667
Income tax on capital gain = 12066667 x 20% = 2413333.4
There is a capital gain of around 1.20 CR. In order to save income tax completely on this, under section 54, you can buy another residential property with purchase price equal or more than capital gain (~1.20 in this case).
Please note that exemption is only available against a single property. If your father buy a single apartment for more than 1.20 crores, income tax will be saved.
In case he buys two apartments, you may only consider the one with higher price, say 90 lakh. In that case income tax will have to be paid on remaining gain amount (say 1.20-.90 = 30 lakh) @ 20%.
Property against which you will be taking exemption, has to be bought in the name of same person.
New residential property can be purchased anywhere in India.
Hi,
My father bought a house in 1979 at the price of around 78K. Now after that we did lots of reconstruction of the home and i am planning to sell that house at around 70-75lac Rs. So in that respect i want to know the following:
1) What is the tax that i need to pay for this?
2)I have bought another flat for which i am paying home loan. If i repay that home loan from the money i will get by selling this house, shall i get any tax exemption?
Regards
SR
@SR
In order to computer long term capital gains and income tax on that, we need following more information:
1. Fair market value of house in financial year 1981-82. As CII (Cost inflation index) was started in 1981, this approx figure in needed.
2. Amount spent and years in which reconstructions were done.
With some rough estimate, if you sell it now at 70 lakh (without considering reconstruction cost and fair value in 81-82 as 1 lakh) then long term capital gain will be around 62 lakh and there will be 20% income tax payable on that.
There is no income tax benefit of repaying home loan with long term capital gain amount.
If this new flat has been bought within one year before selling old house, then income tax benefit can be taken under section 54. But That too will be applicable if both the properties are in name of the same person.