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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HELLO, PANKAJ
i have little confusion that my mother had received gift as a gold in 19-03-2010 from my grand mother at his death which gold she had from last 50 years and that particular gold my mother gifted my wife on 18-09-2010 and my wife is sold that gold immitiately to jeweller. the criteria of the valuation i mentioned below Please told me can i liable to pay income tax if yes, how much tax (capital gain) i m liable to pay.
valuation of gold on 01-04-1981 is as per valuation report is Rs. 2,72,477/-
valuation of gold on 31-03-2010 is as per valuation report is Rs. 26,30,158/-
my wife sold it on 20-09-2010 the total value of gold is Rs. 37,19,153/-
@Juned
Please see computation for gains and income tax below:
Purchase Year = 1981-82, Purchase Cost = 272477, Cost Inflation Index (CII) for purchase year = 100
Sale Year = 2010-11, Selling price = 3719153, CII for sale year = 711
Indexed Purchase price = 272477 x (711/100) = 1937311
Long term capital gain = 3719153 - 1937311 = 1781842
Income tax on capital gain = 1781842 x 20% = 356368.4
THANKS ALOT FOR YOUR CO-OPERATION BUT I STILL CONFUSE & WANT TO TELL U ONE THING THAT AS PER THE INCOME TAX ACT TO HOW TO DETERMINE THE PERIOD OF HOLDINGS, MY WIFE IS THIRD PARTY SO CAN I CALCULATE THE CCI PURCHASE COST OF YEAR 2010-2011 PLEASE TELL YOUR OPINION ON THAT & CLARIFY PLEASE
@Juned
As this is inherited/gifted asset, LTCG computation would be done on actual purchase as done by her grandmother.
thanks pankaj for clarification, now i want to tell to u that can we cover this matter in wealth tax if yes than we save or reduce the tax liability in wealth cum income tax. post your grievence
@Juned
Wealth and income tax are two different taxation and they cannot be clubbed together.
I sold a property and there is capital gain on it. few months ago I had purchased one property in my sons's name with my funds. Can I use investment in this property (in my son's name who is a minor) to save long term capital gain tax.
@Pooja
To save income tax on capital gains, new residential house property should be in your name (single or joint).
Hi Pankaj,
Thanks to share good knowledge with us through this blog.
i have one question ?How i can save the Capital gain and how i can reduce it with another investment.
i have one flat ,
Purchase cost= 2350000 on date is 24/07/2009 .
Stamp duty reg is 200000
Now i am going to sell on 4500000 laks this property in Pune Maharashtra.
Please calculate the capital gain and please guide me how to save the capital gain? or may i reinvest in another property for saving capital gain
Thanks in Advance!
@Rahul
If you sell this property before 24-07-2012 (before three years), gains would be counted as short term. In that case whole profit of 19.5 lakh would be added to your taxable income and would be taxed as per slab rates (max 30% rate).
There is no tax benefit/exemption available for short term gains.
Please help me on this,
I have an existing house (20years old) and today i have bought a new one by taking a loan and am also planing to sell the existing one within a period of one year from today can i get capital gain exemption on selling my existing house.
@Ammar
To save income tax on capital gains, you should have bought another residential house property within one year before date of transfer.
So if registered sale deed for old property is done before 28th Feb, 2013, you can claim tax benefits u/s 54.
I had sold my ancestral agricultural land in india & had purchased within 3months new agricultural land in india in the names of my wife by making gift of that amount to her whether exemption under s.54b is allowed to me or not?
@Anish
In order to get tax benefit, new property should be on same person's name who has got long term gains. Gifting amount to anyone does not remove tax liability.
Hi, I had sold my land on 28-12-2011 in India. Do i need to pay tax for the current year of 2011-2012, Or, is it possible to pay the Tax after april 2012. Please assist on this.
@Raja
If you pay taxes after 31st March, interest penalty may also be payable for late payment.
Hi Pankaj,
We have sold a residential land for around 70L and now from this amount we are planning to buy 2 flats. So, Can i get the tax exemption for both these flats?
@Santosh
You would only be able to claim tax benefit against a single property purchase u/s 54.
Dear Pankaj,
We have an ancestral property( grand father's), which we are planning to sell, My share along with my mothers comes down to 40 L. I have an educational loan to repayed 10L. My mother being a single parents wants atleast 10L in fd for her future. I am left with remaining 10L, I wish to invest that for a long term use. I was told that huge amount would towards tax. Is there a way I can avoid paying tax, as any amount saved will be useful for our family
@Shri
First you would need to compute long term gains using below formula:
Purchase Year = A, Purchase Cost = P, Cost Inflation Index (CII) for purchase year = X
Sale Year = B, Selling price = Q, CII for sale year = Y
Indexed Purchase price = P x (Y/X) = R
Long term capital gain = Q - R = S
Income tax on capital gain = S x 20%
Here purchase year is year in which your grand father bought this property. If it was before 1981, you should assume a fair market value as on 1st April, 1981 as purchase cost and year as 1981-82.
This would give total gains for property, divide this gain among all shareholder to compute gains per holder. Now 20% income tax is payable for each holder.
If you want to save tax fully, you can buy/construct a residential house property for cost more than your share in long term gains or invest gains into capital gains bonds.
In your situation, investing into capital gain bonds for three years would be good option.
Hello Pankaj,
Thanks for your blog. It is very informative. I had a few specific questions:
1. My mom is planning to sell an apartment she purchased back in 1996. The purchase price was 8lacs. If I take an approx index of 800 for 2012-13 (planning sale in april 2012), the cost comes to about 21lacs. She had also spent about 5 lacs on flooring and redesigning the apt in 1996 and then about 8 lacs on furnishing in 2004. Can she show the indexed price of these as cost? She has some receipts but not all.
2. The buyer is planning to pay 70 lacs as registration cost (based on existing guideline value) and then 40 lacs against the furniture and renovation. Does this affect my mom's tax liability?
3. In case I get bonds for 3 years for the LTCG amount. Would I have to show that amount as income in the year I sell the bonds.
4. Last question, I've sent her money for the renovation, furniture etc over the years from UK as gift. Is there any way she can payback that amount to me and reduce her tax liability?
Thanks,
@Siva
1. If additional amount spent was on re-construction/additional construction of apartment (physical changes) then indexed cost can be added to compute LTCG. Receipts for payment to builder/construction material supplier should be there to prove same.
2. LTCG would be computed only on registered deed value. So selling price would be considered as 70 lakh only.
3. Capital gain bond maturity amount would not be taxable fully. Only interest earned would be taxable.
4. There won't be any tax benefit if gift/loan amount is returned to you by your mother.
Thanks a lot for the response Pankaj. On Question 2, would the remaining 40 lacs be considered regular income for my mom then? OR is that non-taxable if we show it as payment against the furniture etc... the It's all by check and we want to declare everything.
@Siva
It would be tough to avoid tax on remaining 40 lacs. As amount is large, Income tax department may ask for sources of these funds.
In that case you would need to prove that some asset was sold or something like that.
I would advise you not to take any risk and consult an experienced tax professional or CA in this matter. He may charge you some amount but would suggest you how to show this income.
i had got some amount in a court case as the compromise amount for withdrwing the case whether it is taxable or not?
@Anish
We are not sure about taxablity of compromise amount.