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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Thanks a lot for answerign the query Pankaj
Thanks once again
Ramesh
hello sir,
I have 1 q.
My mom has sold 2 commercial shops recently in which long term capital gain has occured.
How can we save it and she already own 1 residential house.how it would affect.
@Bhawana
In order to save income tax on long term gains (from selling commercial property), she can invest sale proceeds in a residential property (u/s 54F) or invest sale proceeds in capital gain bonds (u/s 54EC).
She meets the eligibility criteria if she does not own more than one residential property at the time of buying a new property.
Hey,
I have a question also, but my question for CGT relates to shares and mutual funds. I am a beginner Investor int he stock market & wanted a brief know how on basic methodolgy of calculation and filing of CGT if I trade shares on the BSE-30.
@Mohammed
If STT (Securities transaction tax) is paid on transactions, then short term gains (holding period less than a year) will attract 15% tax rate. Long term gains from stocks (holding more than a year) will be tax free.
Hi,
I have recently purchased a second house. Now if I sell my first house within the same financial year can the capital gains tax be avoided?
Best regards,
Pravin
@Pravin
If house is sold before three years, short term gains will be applicable. Whole gain will be added to your taxable income and taxed at as per your slab rates.
Thanks Pankaj for your reply,
I had one more question, what would be the proper procedure forfiling CGT ?
would I be filing it quarterly or annually? also would I file it with my Income tax return online or I would need to file it seperately ?
@Mohammed
You will have to pay income tax before 31st March of financial year in which gain is incurred. After this date, there will be interest payable under section 234B
It has to be declared in the income tax return to be filed by 31st July.
What are the provisions regarding capital gains arising out of sale of Industrial NA land situated 10 Kms beyond city corporation limit in a Grampanchayat area?
Is it true that if capital gains tax is Rs. 10 Lacs and we invest 10 lacs in Capital Gains bond, we will save on entire capital gains tax?
Is there any other option to save capital gains tax?
@Umed
Sale of industrial land will be considered long term gains if holding period is more than three years. Income tax is payable on this gain @ 20% with indexation computation.
In case of such long term gains, income tax arising on that, can be saved under section 54F or 54EC.
Under both these section, you will have to invest whole sale consideration amount (selling price) into a residential property or capital gain bonds.
Dear
Sir,
Purchased a land & constructed a house about ten years
back ( in two names with first name of mine). Sold some other land
about three years back, this was in wife's name and purchased a flat(I
also invested money), registry in the month of Oct,2010(it was also
purchased in two names with first name of wife ). Recently I Sold a plot
which was in my name. Please let me know how can I save long term
capital gain.
@Subhash
If a piece of land is hold for more than three years and its sold afterwords, long term capital gains arises.
Income tax is payable on long term capital gains @ 20% after indexation benefits. Such tax can be saved under section 54F and 54EC.
Under these sections, you will have to invest whole sale consideration amount (selling price) into a residential property or capital gain bonds.
congratulation, and keep up your good work.
i have a house which is bought in 1973, i am getting old , hence i sold it in 2010. a part of the proceeds i had to pay of as by debts, and the remaining i bought a small flat to live and also bought another additional property to have a regular rental income. all this happened within one year. now let me know 1. if at all i am eligible for capital gains,2. can the registration cost for buying the new property be taken into account.
@Sudhakar
As you sold your house, income tax liability will arise on capital gain incurred.
This income tax can be saved as per section 54, in case you buy a new residential property within two years of old house sale. In case new flat cost is more than capital gain earned (with indexation calculations) then there is no income tax payable.
Registration cost for new property can be added to new house cost.
Hi Pankaj,
My wife owns a piece of property along with her brother and cousins. The property was gifted to the grandchildren by their grandmother. All of them are now looking to sell the property. What are the tax implications for my wife in this scenario (she is currently a salaried employee, working with a software firm)? Please advice on options to avoid the long term capital gains tax. Thanks.
@Phani
There will be income tax payable on arising capital gains from sale in her share in property.
Under section 54, To save this tax, she can buy a new residential property in her name within two years of property sale. New property cost should be more than her capital gains to save tax fully.
She can also invest in capital gain bonds (u/s 54EC) to save income tax.
Dear Pankaj,
many thanks for your valuable suggestions and replies to my queries raised earlier regarding capital gains from sale of house hold property and purchase of new property in lieu. However I have one more query to ask you. Under which section of income tax the cost of purchase of new property is to be deducted from capital gains. Also please intimate which is the best book available in the market showing various types of computations of income tax and various types of return forms applicable. Please intimate.
@Devnendra
Section 54 and 54F is applicable for income tax benefit on capital gains.
You can buy income tax books from TaxMann.