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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kuch samajh nahi aaya..looks like a communication from one lawyer to another
Dear ,
As I want some clarification on below matter.
1. I am living in Ahmedabad in a rental house.
2. I have purchased new houese through bank loan.
Q. Either I claim HRA as a exemption or Housing loan interest ? or Both
@Ketan
You can claim interest and principal of your House loan from the year in which you get possession.
Whenever you start claiming rebate for principal and interest amount and you work in an office which is at a commutable distance to your owned house(less than 50 Kms), then you cannot get benefit of HRA.
If your owned home is far away from your office, then you can claim both HRA and Loan benefits.
Hi Pankaj,
My Father has sold an house in march 2010 for which he received possesion in 1986. He wants to invest this amount in buying a falt in a socity. This project will get compleated in next 2.5 to 3 years. If he book a flat in this socity will he able to save LTCG tax.
Please let me know in simple language :).
Thanks
@Ashish
Since you have kept the house for more than three year, its long term capital gain.
In case of long term gain, you can invest the amount again in buying another house (within a year of selling or within 2 years of transfer) or construct another house within 3 years of sale or Investments in bonds within 6 months of sale (Section 54 EC of the Income Tax Act) issued by Rural Electrification Corporation, National Highways Authority of India and National Bank of Agricultural and Rural Development.
In case you are not decided about buying new property but intend to buy one later and still want a deduction on the tax on your capital gain, you must invest whole amount in Capital Gains Scheme of Deposit Account, which can be opened in any public sector bank branch. But if this amount is not used for buying new house within three years, tax on long term capital gain have to be paid.
Income tax on long term capital gains is 20% with indexation and 10% without indexation (only applies to some mutual funds and debentures).
So you can calculate tax using below method.
Lets say purchase price = X, purchase year = P, sale price = Y, sale year = Q
Cost Inflation Index (CII) for year P = R, Cost Inflation Index (CII) for year Q = S
Indexed purchase price, Z = X * (S/R)
Capital Gain, C1 = Y-Z
Tax with indexation = C1*20%
Hi Pankaj,
Tell me one thing, if a person is unable to find a suitable property to invest in. What is the procedure to withdraw money deposited in Bank under Capital Gains account.
Regards,
Vaibhav
@Vaibhav
You have to give a written request to your bank to close that account and you have to pay capital gain tax on that.
Hi Pankaj,
Thanks for responding, but bank informed me that you have to bring Tax Paid clearance letter from IncomeTax department and then they will release the fund. Means you pay tax upfront and then they will clear the capital gains.
Is that true. Can you pls thru some light on this as well.
Regards,
Vaibhav
@Vaibhav
You have to get the approval from your income tax assessing officer in Form G and submit it to the bank.
Hi Pankaj, I came to you site researching the meaning of Acquisition date for the purpose of long term Capital gain tax.
My queries are
1. Can we treat allotment letter issued by Housing authority (HUDA). It is a plot and payment was done over the period of 6 year in installment?
2.
Alloted in 2002
Possession offered 2006
Full payment done by 2008
possession on paper took on 2009
Now some says that allotment date can be taken as acquisition date they cite some DDA case (cir 471) but they mention flat.
But in my case it's plot. Can there be two definition of acquisition for plot and flat?
In my case can I take allotment date a acquisition date please?
@Anurag
Yes allotment letter can be treated as acquisition date for long term capital gain calculations in case of a flat.
But as yours was a Plot and no construction has been done, so case is bit complex. As I am not a account/finance professional/CA. I would request you to consult any tax professional regarding same.
You may also read this: http://www.caclubindia.com/articles/long-term-capital-gains-exemption-u-s-54f-5023.asp
hi pankag...
my father had purchased a shop in 2006 n now v r selling it n we want to invest that money in plot....please can u tell me that how can i save my capital gain tax......
please reply as soon as possible
@Rahul
According to income tax laws, treatment of capital gains from sale of house property(Section 54) and commercial property(Section 54F) is different.
To save tax in 1st case (gains from sale of house property) one has to invest only the gain part. (If purchased for 10 lakhs and sold for 25 lakhs, then only 15 lakhs needs to be reinvested to avoid income tax on long term capital gain).
Whereas in 2nd case (gains from sale of commercial property/jewelery etc), the whole selling amount needs to be reinvested to avoid income tax.
Now where to invest, those rules are same as in both cases, and you may read them on this article.
Sir,
I am Resident Indian and not a salaried person. If I sell a plot in the category Long term capital gain, the sale proceeds will be my only income. In this case am i eligible for standard deduction.
Swaminathan
@Swaminathan
Capital gains cannot be included with income from salaries and tax can only be avoiding by investing further into property only. No standard deduction rules applies here.
thanks for ur suggestion ..ur reply has helped me a lot..
Sir,
Thanks for your reply. I have one more doubt. Say I bought a plot for Rs 7 lakhs in year 2003 and sold for Rs. 14 lakhs in year 2010. I am not a salaried person and do not have any other income in the years 2003-2010.
Can I consider the following:
The capital gain in the above deals is : 7 lakhs.
This capital gain income is earned over a period of 7 years.
In these 7 years 2003-2010 the average income per year is : 1 lakh.
Assume, As per income tax department the exemption limit per year is : 1 lakh.
In the above case is there a necessity to pay income tax on the capital gain of 7 lakhs.
I thing all the capital gain income is exempted by the exemption limit during the years 2003-2010. So, there is NO income tax on capital gain.
Is my tax calculation correct.? Please inform me.
@Swaminathan
Capital gains can not be divided among the number of years during which it has accumulated.
If you want to save income tax on this gain, you have to invest 7 Lakhs again into some residential property.
Income tax on long term capital gains is 20% with indexation and 10% without indexation(only applies to some mutual funds and debentures).
So you can calculate tax using this method pay that amount.
Purchase price = 7 Lakhs, purchase year = 2003, sale price = 14 Lakhs, sale year = 2010
Cost Inflation Index (CII) for year 2003 = 463, Cost Inflation Index (CII) for year 2010 = 632
Indexed purchase price = 7 Lakhs x (632/463) = 9.555 Lakhs
Capital Gain = 14-9.555=4.445 Lakhs
Tax with indexation = 4.445 Lakhs x 20% = 88,898 Rs
So you have pay this amount as income tax on this capital gain.
Dear Sir,
I would want to know if I can have the option of computing Long Term capital gains on house property without indexation. If yes, please let me know the relevant section.
I would be grateful to receive a prompt reply.
Thanking you.
Kind regards
Bhagyanathan
@Bhagyanathan
Capital gains on House property can only be calculated through indexation method.