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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My father bought a property in 1970 at the cost of Rs 2000 for 27 bigha.Now he wants to sell this property (2011). the circle rate of land is Rs 10 lakh per bigha but the market price is far less (3 lakh).
what should i do to save tax n pay tax on actual transaction cost. some persons say that tax has to be paid as per circle rate. please gve me advice whether it is correct or not? what is the provision of "Distress Selling''?
@Rajeev Anand
Capital gain will be to computed as per ongoing circle rates or the selling price, whichever is higher.
We don't have any idea about distress selling in income tax terms.
I have Puchased a 1 BHK flat in Mumbai on 30th June 2003 in Rs. 13,16,550 and sold it on 29th March 2011 in 40,00,000. Please advice.
a) What is the Capital Gain Tax liable to me?
b) Can I purchase one or more residential plot?
c) What if I purchase a residential plot in other city and do minimal construction to overcome the liable tax amount?
@Vikas
1. Below is computation for long term capital gains and income tax:
Purchase Year = 2003-04, Purchase Cost = 1316550, Cost Inflation Index (CII) for purchase year = 463
Sale Year = 2010-11, Selling price = 4000000, CII for sale year = 711
Indexed Purchase price = 1316550 x (711/463) = 2021743
Long term capital gain = 4000000 - 2021743 = 1978257
Income tax on capital gain = 1978257 x 20% = 395651.4
2. In order to save tax, LTCG has to be invested into a residential property (house/flat) or a new house must be constructed. So exemption will be available on buying a residential plot alone.
3. If you purchase a plot and construct a house on that, income tax benefit will be available. In order to make tax zero, you will need to shell out atleast 19.8 lakh for new house.
I was working in Singapore and due to recent job retrenchment left Singapore and came to Haridwar. Since my wife had an Savings account in Haridwar hence I transferred all my Singapore earnings to my wife SB account in Haridwar so that I can start some biz soon and buy a house to live. Here important is my all earnings in Singapore has Income Tax clearance. My bank advised to take Fixed deposit for the amount
Please advice will the received amount be considered as Income for my wife?
What can I do to save any tax from this accounting issue ?( if any) may be i can add my name as joint account holder?
Please advice
@Vikas
You can transfer amount from Singapore bank to your wife's account as gift.
There is no income tax for gift to wife.
Hi,
My brother and I jointly owned a flat which had cost us Rs. 300000, bought in some in 2001. This year January end, we sold it for Rs. 1000000. My calculations for logn term capital gain tax are below:
Purchase Year (probably after April 01) = 2001-02, Purchase Cost = 300000, Cost Inflation Index (CII) for purchase year = 426
Sale Year = 2010-11, Selling price = 1000000, CII for sale year = 711
Indexed Purchase price = 300000 x (711/426) = 500704
Long term capital gain = 1000000 – 500704 = 499296
Income tax on capital gain = 499296 x 20% = 99859.2
Now questions:
1. My individual Capital Gain would be 499296/2 = 249648. Are my calculations correct?
2. Somewhere above you mention that to save this tax, if reinvesting, then it should happen in same name. In my case, if I now reinvest independently, can't I save tax since this property would be only in my name (or in jointly with my wife) and not jointly with my brother?
3. I will need to invest Rs 249368 before July end (6 months from January end) assuming I do not want to keep the tax amount in Capital Gain Account Scheme and withdraw later for investing), right?
4. For filing returns, what all documents are needed for attaching. One CA I enquired is asking for Index2 copy when we bought it and Index2 copy of new property that I might buy.
5. Are the bank statements (for dates) needed to be attached to prove that you are investing from your own pocket as opposed to what you got after selling?
Please let me know since this is urgent and I need to make a decision in a week or two.
Thanks!
Ghanshyam
@Ghanshyam
1. Your individual capital gain will be in same portion as the joint property is. If its equal holding of 50-50%, then your gain will be 249648 as you computed.
2. You can invest independently now. New property can be on your single name or joint with anybody (wife/brother/son etc). But your share should be more than your capital gain share to make income tax zero.
3. Six month time period is for capital gain bonds. For Capital gain account scheme, investment has to be done before tax filing (July end). So you may buy a new property before tax filing and show exemption for same in income tax return.
4. No document need to be attached with income tax return. IT department won't accept any attachment.
5. Declaration of exemption is fine, no proofs need to be attached. In case IT department has any doubt they can raise a query.
Hi Pankaj, thanks for your answers! I was reading your answer to @Gopal about possession of new property while evaluating eligibility for exemption of Capital Gain tax. You have mentioned that since his possession is somewhere in 2013, he would not be eligible even if he has paid 11 lakhs already. I would think that as per tax rules, it would be the "transfer" date that matters to say that you have purchased the property and not the possession date. Am I right?? So as per my thoughts, @Gopal should be eligible if he has already done the Sale Agreement, right?
@Ghanshyam
Sale agreement is not considered for income tax purposes. You should have possession or registration of property in order to claim exemption.
Transfer date is generally registration date, but in some cases court has ruled in favor of possession (handover of property).
While sale agreement is done, you are not a legal owner of property.
Dear Mr.Pankaj,
Please refer to my earlier question
I have sold my Land in Nov 2010 for about 10 lakhs ( purchase price in 1992 was 43000). I have booked my Flat in may and paid 20% of flat value which comes to aroud 11 lakhs.We will be registering the UDS of the Flat to my name by Jan 2011 so will it be considered as a Transfer date and i can save on Capital gain Tax.
My actual pocession date of occupying the flat is June 2013.
I saw your answer to Ghanshyam, I hope you can clarify further so it is clear to everyone.
Rgds
Gopal
@Gopal
If registration of the new property has been done in your name, then you can avail capital gain exemption under section 54F.
However there have been n number of different cases in court in which allotment, possession and registration dates have been considered on case to case basis.
If you think you have paid substantial amount (or whole) of gains in acquiring new property, but did not get registration or possession due to unavoidable circumstances, you may also fight with income tax department in court for exemption.
Hi Pankaj,
I bought the property in 1994 at Rs. 2.5 lacs (CII= 244) and am about to sell the same this year at 12.75 lacs (CII=785). According to your calculations, I need to pay Rs. 95000 as income tax, right?
@MJ
Yes, below is calculations:
Purchase Year = 1993-94 , Purchase Cost = 250000 , Cost Inflation Index (CII) for purchase year = 244
Sale Year = 2011-12 , Selling price = 1275000 , CII for sale year = 785
Indexed Purchase price = 250000 x (785/244) = 804303
Long term capital gain = 1275000 - 804303 = 470697
Income tax on capital gain = 470697 x 20% = 94139.4
Hi Pankaj,
Glad to see a expert advice and in detailed too.
We have sold a land in Feb2011 for Rs 23lks which was purchased in 1986 for Rs 30000. That was owned by my parents equally( 2 acres, one each). Now we are planning to build a house in land which was inherited by my dad. Does it attract capital gains tax? Have followed the complete thread and got an idea that it wouldn't.
But my dad already owns the house we stay. I can have the new house be built on my mom's name or jointly. In that case does the half amount of 23lks attract LTCG?
If it does, Please suggest any better option if any!
@Phani
Under section 54F, to save income tax on capital gain from sale of land, consideration amount can be invested back into a residential property or construction of a new house.
Capital gain has been earned by your mom and dad. So if they construct a new house (independently or jointly) on land they owned, income tax can be saved.
Only condition this rule has is, one cannot own more than one residential property in his name at the time of buying/constructing new house.
If your father already own a single house, that should not be an issue, but if owns more than one then income tax benefit won't be available.
Yeah, my mistake. I wanted to say Registration but said Sale Agreement. Thanks!
I took home loan for purchase of home which was in my father's name in 2004-5. The same was transferred to my father through settlement deed in 2007.
I purchased a new home in 2008. Am I to pay any tax for the same?.
@Geetha
As you did not sold property, there won't be any capital gains and hence no income tax is payable.
Hi Pankaj - Thank You for your knowledge sharing and expert advice. I have a question -
I plan to sell my current house (bought in 2003) and buy a new one. Selling my current house will involve me a LTCG of around 50 lacs. The new property I am planning to buy is roughly 1 crore. If I buy the new property in advance using a mix of my own funds (plus some bank loan - say 50 lacs of my fund and 50 lacs of bank loan) and sell the old house within 6 months of buying new one then can I adjust the LTCG of the old house against the new house which I bought in advance.
Regards
@Sushill
Under section 54, If you buy another residential house with amount equal or more than long term gain amount (50 lacs in your case) within one year before sale of old property or within two years after sale, there won't be any income tax payable.
As you are buying new flat 6 months before selling old flat with an amount more than capital gains, you need not be pay any income tax.
Hi,
I bought a land (plot) in March 2007 for Rs4,50,000. The buyer insisted on cash payment and the registration was also done as per circle rates (Rs40,000) which was very less. I paid by white money (withdrawn from bank) to him all the Rs4,50,000. Now, I have sold this for Rs8,80,000, and the registration is also done as per current circle rate of Rs54,000/.
Now, I have few questions.
1) My actual net income is 8,80,000 - 4,50,000, which is Rs4,30,000/- I am ready to pay 20% tax for this income. Now, how do I prove that my purchase cost was Rs4,50,000? Since the registration papers are not showing the actual money that I spent, what is the alternate option to show to income tax department about the actual?
2) I have deposited my current income of Rs8,80,000/- into three banks. I want to buy another plot in a different place. The other plot owner is also insisting on paying everything by cash. Again, the registration is also based on circle rates which is very low. Is there a way to make it legal with everything as white?
Regards,
Sriram.
@Sriram
Your query has been already answered on http://www.socialfinance.in/questions/844/buying-and-selling-land-using-cash