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:
- If the cost of the new asset is more than the net consideration received in respect of the original asset, the whole of such capital gain shall not be charged to capital gain tax as per section 45 of the Income Tax Act.
- If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears the cost of the new capital asset shall not be charged to capital gain tax as per section 45 of the Income Tax Act.
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 the assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset.
- If the assessee purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset
- If the assessee constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.
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.
Sir ,
1 ) I have purchased a Flat in Mar 2007 for a price of 9.25L and i have sold it in July 2011 for a price of 18.25 L . secodnly i have Paid Loan amount of 6 Lakh to bank from 18.25 L which i haev got .
2) I have another Residential Land with My Name which was purchased in 2010
Could you pls help me what would be the Capitaz Gain Tax in the case of above
@Sridhar
You will have to pay around 85000 as income tax on long term capital gains. Please see computation below.
Purchase Year = 2006-07, Purchase Cost = 925000, Cost Inflation Index (CII) for purchase year = 519
Sale Year = 2011-12, Selling price = 1825000, CII for sale year = 785
Indexed Purchase price = 925000 x (785/519) = 1399085
Long term capital gain = 1825000 – 1399085 = 425915
Income tax on capital gain = 425915 x 20% = 85183
I have a residential plot purchased by my father for 48000 in 1970 in my name.
Current value is 2.6 cr.
I have 2 more residential houses in my name. I have one wife, son and daughter.
I have these houses bouught before 2009.
Please suggest how I can save LTCG
@GaneshK
As you already have two houses in your name, you won’t be able to save income tax on long term capital gains under section 54F.
But you can invest into capital gain bonds under section 54EC to save some part. Max limit for investment in these bonds is 50 lacs per financial year. Investment has to be done within six month of property sale.
Dear Sir
For a 50 lakhs house how much will be the tax for this home. Its built in 16 cents.
@Achu
We are not able to understand your question.
Please use following method to compute capital gain and income tax:
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%
I have purchased a vacant plot for Rs 200000 in the year 2000 and sold the same for Rs 1400000 in the year 2011.I have purchased a vacant plot for the same amount Rs 1400000. I have also one more vacant plot in my name.Can i get any exemptions on capital gain
@Smitha
No exemption is available under section 54F on buying a plot, but if you construct a house on new plot within next three years of sale, exemption will be available.
You should not own more than one residential house properties while constructing new one.
Hi,
I sold a property and the LTCG was around Rs. 90lacs. Now my husband has a land in his name which was leased by the state govt to him for 99 years. Can i construct a house on that and save tax u/s 54?
@Hemali
You should be owner of the property to get tax benefit.
New constructed should be in your name (joint or single owned)
Thanks Pankaj!
Just wanted to know if the wife needs to have an agreement with the client to ensure that the constructed property remains in her name or joint name? what kind of an agreement, if yes?
@Hemali
Did not get your question.
If your husband can first transfer land to your name and then you construct house on that, it will be eligible for tax exemption.
Hi Pankaj,
Its a leased land from State Government, cannot be transferred to his wife’s name. Hence the above query, not sure if they can have agreement for the constructed property.
Thanks again!
Hemali
Pankaj,
The gold I’d bought a few years ago quite cheap at 9000 INR per 10 gm, I’ve sold for about Rs. 4 Crore now. I don’t want to be stuck with a huge capital gains tax and wealth tax. I don’t want to invest in govt. bonds because my money is parked for 3 years with very low returns.
I want to invest the proceeds in commercial real estate, but not on my name but on the name of my company (limited partnership) mainly because I don’t want to be sued if something happens. I’ve heard that we don’t have to pay wealth tax on commercial real estates. If so, how do you suggest I best minimize my taxes?
Thanks a lot!
@Sayyad
If the gold is sold before completion of three years, it will be short term gains and no exemption is allowed for saving income tax.
Income tax on long term capital gains can only be saved by buying residential house property (u/s 54F) or buying capital gain bonds (u/s 54EC).
If you invest in commercial property, no tax benefit can be availed.
Hi,
My wife bought a residential plot for Rs 5 lakhs in april 2005. Now we are planning to sell it for 15 lakhs and buy a commercial shop worth 10 lakhs. How do we minimise the LTCG tax.
@Rahul
There is no tax benefit if you invest into commercial shop.
Income tax can be fully saved if you invest whole sale amount into a residential property (u/s 54F) or into capital gain bonds (u/s 54EC).
I have purchased a property in 10 FEB 2003 and I am planning to sale the property
I have few queries
1) the property is jointly name of me and my mother (She is a house wife and does not have any income).I have made all my payments using my income When I sell the property will my mother need to pay tax since the joint owner?
2) I have already purchased an under construction property in May 2010 and made an agreement in July and I will receive possession some where in march next year i.e. 2012 .Which date is consider for capital gains tax? Date of possession or date of agreement or date of booking .If I sell the property do I benefit from the new property?
3) New property purchased is in my and my wife name jointly .She is also a house wife. How much percentage of amounts is considered for capital gains tax?
4) I have taken loan for new property .Does these properties qualify for capital gains benefit If I Have taken loan?
@Nilendra
1. Your mother would have to pay taxes on her share of capital gains. If the whole purchase amount was paid by you, then whole gains would be taxable in your hands.
2. As you purchased a new residential house property, you may claim tax exemption on long term gains. Possession date can will be considered as purchase date. If you sell new property within next three years of purchase, tax benefit would become void.
3. Only cost of your share in new property will be considered for long term gains benefit.
4. Even if you have taken loan, you can still claim for tax exemption.
How is the share decided? by amount paid by cheque/dd .. Or is there any other mechanism
@Nilendra
Share will be decided by ownership ratio. While registration of property, you can have this mentioned in papers. If not mentioned, equal portion will be assumed for all joint owners.
” If not mentioned, equal portion will be assumed for all joint owners”
Is there any way after registration where we can mention the ratio may be something like a mutual agreement on stamp paper between the owner mentioning the ratio and is valid and accepted by law and tax authorities
@Nilendra
I think, it can be changed by co-ownership agreement.
Please consult a property expert in this matter.
Dear Sir,
Which date i.e agreement date, stamp duty date, registration date or possession date is taken for calculating the period of 36 months for LTCG on sale of residential flat?
regards
Hitesh
@Hitesh
Generally its registration or possession date. You can treat one of these whichever is earlier.
Sir,
I own a Apartment and a residential land (bought in 2007). Now I am buying a land and would like to construct a house. For this I need to sell a part/whole of the residential land. Can I put the profit gained from selling this land into the construction of the new house to avoid Long Term Capital Gain Tax?
@Anup
As per section 54F, to save income tax arising from long term gains (from selling plot), amount can be invested into construction of a new residential house property.
Hi pankaj
my father is goi to sell his house worth near 1 crore now which bought some 60 yrs ago . that s ancestral property. I read the above blog.
1.How the indexation factor is considered in this case?
2. he is having two houses in his names apart from the 1 crore one.so if we want to escape from the tax what is the soln?
3. is he allowed to buy the new house on his wife s name or his son s name? what will be taxation at that time?
Thanks for ur gr8 work..
@Vignesh
1. As property was bought 60 years ago, when CII (cost inflation index) was not in place, indexed cost would be computed with fair market price as in April, 1981.
2. As per section 54, if he buys a new residential house with cost more than capital gains earned, no income tax would be payable on gains. Other way to save tax is to invest gain amount in capital gain bonds as per section 54EC. But max investment can be 50 lacs per financial year only.
3. New house should be in the name of same person and not on any one else’s.
Thanks for ur immediate reply.
I still have one doubt. In your article u specified three conditions .But ur reply and that conditions contradict. pls clear my second question in my previous post.
I understood that under section 54EC i can buy bonds.but My problem is that he is already having 2 houses other than the 1 crore house. if we buy a new home with greater than capital gains will we be able to avoid tax?
please help me.
thanks
@Vignesh
Article talks about how to save tax when selling land/plot and not a residential house.
Rules for selling residential house are different and section 54 applies here. This differs from section 54F, in which one cannot get tax benefit if more than one house are already in his name.
Thanks you so much for enlighting me
Sir we have house in Delhi in joint name my name is first, which was purchased in the year 1998. We are not living in that flat, but we have given that flat on rent. I am staying in Jaipur for last more than 10 years in rented flat due to my service. Now want to sell that flat and purcahse other one in jaipur. The mkt value of the house is Rs 85 lacs. The house which I want to purchase is around 55 lacs and remaining amount in Govt Bonds. Can I save LTCG in this and How. There is vacant plot in my wife’s name.
@Sandeep
Your query has been already answered on http://www.socialfinance.in/questions/1513/can-i-save-long-term-capital-gain
my father had sold a flat in 2011 for 1800000/- whish was purched in 2007 for 700000/- ,and father is retired ? now i and father are purchasing a flat for 1000000/-
in joint and we will be staying there? do my father have to pay tax
@Hitesh
Below is the computation for long term gains and income tax:
Purchase Year = 2007-08, Purchase Cost = 700000, Cost Inflation Index (CII) for purchase year = 551
Sale Year = 2011-12, Selling price = 1800000, CII for sale year = 785
Indexed Purchase price = 700000 x (785/551) = 997278
Long term capital gain = 1800000 – 997278 = 802722
Income tax on capital gain = 802722 x 20% = 160544.4
As a plot was sold, to save income tax fully as per section 54F, a new house/flat can be purchased for value more than sale consideration of plot (18 lacs).
If your father decide to purchase a new flat with value 10 lacs in 50-50 ownership with you, only 5 lacs would be considered as investment towards new property.
In that case, your father would have to pay 20% income tax on 802722 – (802722*(5/18)) = around 5.8 lacs.
If new house is singly owned by your father than income tax payable will be 20% of (802722 – (802722*(10/18)).
for the abv case i also want to tell that my brother has also purached a flat for 12lacs in which there is HL of 10lacs in husband /wife name.
father name is not there in his agrrement,
the flat which i and father are purchasing for will be paid by father. i am just make the two applicant in agreement.
so what will be further procudre of tax for 3 off us(i ,father and brother)
@Hitesh
As long term gains is earned by your father only, its of no significance what you, your brother and wife purchases and sells.
Income tax benefit can only be taken for newly bought residential house property which is in you father’s name (single or joint).
i want to invest in real estate (residencial flat) along with my friend with a home loan
our total montly income is 40k (20+20)
suggest the max investment amt we can expose with the given level of income.
our current saved amt (in hand) is upto 4lac.
also suggest for tax treatment as this would be new investment for us.
@Dilip
Considering your monthly income, you will only be able to get home loan for small amount.
Plus before considering investment into property, you must evaluate your monthly expenses and liabilities as they should not suffer due to your EMIs.
You will be able to get tax benefit for home loan interest and principal paid, but it won’t be much use for you as you are already in lower tax bracket.
if capital gain is 8.5lac ,5lac is invested in purchasing a new flat and remaing 3.5lac for agriculture land
do we need to pay tax on LTCG.
@Hitesh
First tax benefit can only be taken against a single property and not on multiple.
Second, benefit is only available for new residential house property purchase or construction. Agriculture land is not an option in case a non-agricultural assets is sold.
I own a house on my name. I have also booked a flat, with my son as co-applicant. The value of the flat is 42 Lacs and I have paid 13 lacs so far. I am selling a property worth Rs.50 lacs. My query is (1) can I pay balance 28Lacs from the sale value of 50Lacs (2) Can I also invest balance 22Lacs in purchase of another flat,with my married sister as joint/co-owner. Since I will be investing 50Lacs in two properties,while I already own one property on my name, am I entitled for benefit of NIL Tax on capital gains.
@CM Jaitly
If property being sold is not a residential house property, section 54F will apply. In this section, you can buy a new residential house property with cost more than sale consideration of old property (50 lacs here).
Below are conditions for eligibility:
1. Possession of new property must be taken within two years from sale of old property. Or new house can be constructed within three years of sale.
2. You should not be owning more than one residential house(flat/house/apartment) at the time of buying new property.
3. If total residential houses owned by you is two (including new property), you should not buy another one within next three years of purchase. Or in next three years, total owned residential houses should not be more than two.
4. New property should not be sold before next three years.
Answers to your questions:
1. You can pay balance 28 lacs from sale value of 50 lacs. As you are already investing 41 lacs in new property you would need to pay some tax proportionality on remaining capital gains as full 50 lacs is not invested.
2. Tax benefit can only be taken against single property and not on multiples.
Thanks for the reply . Can you please clarify the following queries .
1) Do i need to deposit the amount from sale of new property in the Capital gains account in my bank or the same can be deposited into my savings account ?
2) In the event i have to deposit the amount in capital gain tax , then how do i reconcile the earlier amount of 13 lacs already paid by me to the builder .
3) Is there any way to have no capital gain tax on remaining amount of 9 lacs after paying off for the existing amount to builder .
@C M Jaitly
1. If new house is not bought before last date of return filing (31st July) for the year in which gains are earned, amount has to be deposited into capital gains scheme account. In the meantime same can be kept in savings bank account too.
2. If some amount has already been paid to builder, rest sale consideration amount can be deposited to capital gain account.
3. Another method to save income tax is to buy capital gain bonds u/s 54EC. But income tax laws are silent whether both 54F and 54EC can be applied simultaneously. You can consult a tax professional expert in property matters to clarify same.
I have some similar case. Next month, I am about to earn a profit by selling unlisted shares held by me for more than 9 years. I will have LTCG. I booked an apartment 5 years back and paid 95% of it. I will be paying remaining 5% this week and get possession of apartment next month. Apartment will also be registered next month only. Can I claim 100% of apartment cost as exemption or will it only be 5% that I will pay now? LTCG is more than cost of apartment. I satisfy other conditions like holding only 1 other property.
@Vinay
You can get tax benefit under section 54F here. As you are buying (transfer/registration date matters) a new property within allowed period, it will be allowed.
To save income tax fully on LTCG on unlisted shares, new property cost must be more than sale price of shares. If its less then deduction will be available only on proportional amount.
Hi ,
I am through with the deal . Just would like clarity on the mode of the payment from the buyer . Should i go with the demand draft mode ?
@C M Jaitly
Demand draft would be pretty safe to deal with, as its prepaid.
Dear Sir,
Recently I have sold a plot and made a profit around 7.0 Lakhs Rupees (the property puchased 6 years back). .
Last year I have purchsed one more plot on bank loan for 10 years duration. I am planning to close some part of the loan by paying the profit made from the above said deal (entire 7 lakhs).
Kindly let me know wheather I can get exempted from LTCG?
regards,
Ramesh.N
@Ramesh
You won’t get any tax benefit for re-paying loan taken for a plot.
To save tax either you will have to buy residential house property or invest into capital gain bonds,
Hi, I bought a flat in 2004 @INR 13,65000. I am now selling it @INR 55,50000. If I buy another property @INR 42,00000, do I need to pay long term capital gain tax on the difference? i.e. on INR 55,50000 – INR 42,00000. If yes, what will that be?
@Shweta
As you are buying a new residential house property for value more than capital gains earned, there won’t be any income tax payable as per section 54.
Please see long term gain computation below:
Purchase Year = 2004-05, Purchase Cost = 1365000, Cost Inflation Index (CII) for purchase year = 480
Sale Year = 2011-12, Selling price = 5550000, CII for sale year = 785
Indexed Purchase price = 1365000 x (785/480) = 2232344
Long term capital gain = 5550000 – 2232344 = 3317656
Income tax on capital gain = 3317656 x 20% = 663531.2
If you buy a new residential house property for cost more than 33.18 lacs there won’t be any income tax payable.
Hello! I sold a flat in 2005 and after calculating the long term capital gain amounting to Rs. 2lakhs, I deposited the amount in capital gains tax FD account in a Bank, with a view to invest the amount in the construction of a residentail house. But I could not construct the house within stipulated period. Now I want to pay the tax on the above amount and get the FD released. Can you please tell me how much tax I have to pay and what are steps involved in getting the FD released. The bank is not able to give proper guidance. Thank You. Ramapandu
@S.Ramapandu
You will have to pay 20% income tax on capital gains. Interest earned from Fixed deposits will be added to your taxable income and taxed as per your slab rates.
Capital Gains Account can only be closed with the approval of the assessing officer. The application form (Form G, signed by income tax assessing officer) have to be submitted to bank for account closure.
You may download this form from this page: http://www.pankajbatra.com/downloads/?dl_page=2
suppose the land i m having is agricultural land (its away from city more than 60km)?Can I get long term capital tax exempted?
The new purchaser is saying you dont have to tax as its away from city by more than 60km. Can you please confirm?
Thanks in advance.
@Sujti
If land is out of municipal limits, it won’t be considered as capital asset and there won’t be any income tax payable on gains.
Thanks Pankaj
hi pankaj, i have a one query…..i bought house in 6.5 lack in 2003 and sold in 2011-sept…i got some furniture and construction work done in 2010 april and some in june 2011. its nearly 7 lacs….whats my ltcg and if i want to save ltcg by buying new house whats the time period i mean to say within how many years.?
@Dr Pravin Patel
Long term gains cannot be computed without knowing selling price.
Additional construction (after indexation) can be added to cost but its has to be towards some structural changes of building (addition of new room/floor, reconstruction etc). Cost towards furniture, paints etc cannot be added to house cost.
If you want to buy new house to save income tax on ltcg, it has to be bought within two years of sale or in three years if house is constructed.
Sir,
I sold my flat for 33 lakhs in july 2011 which was purchased in April 2006 for 18.5 Lakhs(including taxes and registration) and spend 3lakhs for interior.
Can i get any tax benefit if I spend the money to purchase some agricultural land?
@Rafeeque
There is no tax benefit if you buy an agricultural land.
Also money spent on interiors cannot be included in flat cost.