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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Hi Pankaj,
I wish to sell my villa constructed by myself on a plot of land in 2009 at a total cost of 6.5L+18L (land+bldg)=24.5L and am now selling the same for 35L. I intend to keep 10L as fixed deposit to earn monthly income and use the rest i.e. 25L for building another villa on the outskirts. Can this be done (segregation into FD) right away by transferring 10L from capital gains account into FD or after the construction of new villa. How much tax will I have to pay on 10L kept in FD. Please advice.
Regards,
Rohith
@Rohith
If you sell property before three years, it will be short term capital gains. Whole gain will be added to your taxable income and will be taxed at maximum rate as per your slab.
Hi Pankaj,
I have purchased land & build house (my 1st Residentail property) on 1982-83 by investing Rs 2 Lac and same was sold in apr 2011 for Rs 65 lac. Out of sell proceeds of Rs. 65 lac I want to purchase a new residential flat of Rs 60 Lac. I have no other residential property. In such case how much capital gain tax I have to pay.
Please Advice me .
Waiting for your responce.
@Ashish
As you are buying a new flat for 60 lacs, you can get income tax exemption on long term capital gains (earned on selling earlier property). There will not be any tax payable in that case.
Thank You sir for your kind guidance and quick response.
Sir,
I had purchased a plot of 200 sq yd in August 2009 for Rs 250000/- and sold the same in July 2010 in Rs 300000/- ( gain Rs 50000/-due to change in control rate i.e from 1250/- per sq yd to 1500/- sq yds.) Further i have invested Rs 250000/- in 100 sq yd plot at same place in March 2011 pl confirm the the applicability of Capital gain tax for the same.
Regards,
@Hari Krishan
As you sold plot before three years, it will be considered short term gain. Whole gain (50000 Rs) will be added to your taxable income and taxed as per your slab rates.
HI
Actually we have 3 residential houses.Among them we sold one and we got long term capital gain.To seek exemption we purchased a land within the time limit.Is it neccessary now to pay tax on the long term gain.Please tell me what to do.
@Shaheena
In order to save income tax on capital gain, either you will have to buy a residential property or construct one on land purchased.
Exemption cannot be availed on land purchased.
I had purchased a flat in 2003 for 9 lacs.I have disposed the flat in January 2011for 20 lacs. I intend to buy a new flat for the same amount or more.I do not have any other property. Do I have to pay property tax?. What is the time limit for purchasing a new flat to save capital gains tax.? Waiting for your reply. Do I have to buy a new property within July 30th 2011 which is the last date of filing returns.
@Kariat
If you are buying a new flat for value more than the capital gain before Jan 2013, then there won't be any income tax payable on gains.
You will have to invest the gain amount into capital gains saving scheme until this is used to buy a new property. This has to be done before income tax return filing for FY 2010-11.
Thank you Pankaj for your prompt reply. very useful info for a layman like me
Dear Mr Batra,
Input:
1. Flat “A” purchased in Dec 1985, in the name of KKG ( Self- single name).
2. House “B” purchased in June 2004, in the name of GG (spouse –single name).
3. Flat “C” under construction, agreement date May 2011, possession /registration likely in Dec, 2015.
4. I Understand that LTCG arising from sale of residential house is exempt if the original asset is held for more than three years and a new house
was purchased within one year before or two years after the sale of original asset, OR A new residential house is “ constructed” within three years.
Question:
1. Definition of "construction" is not fully understood, Since builder is constructing apartment “C”, will it come under the definition of “constructed”
? What happens if construction of "C" is commenced before sale of "A" and "B" but delayed beyond 3 years of sale? Is construction to be started within 3 years OR completed within 3 years? Can construction start before sale?
2. Can we avail LTCG by selling Flat “A” and House “B” and investing entire amount in “D”? Keeping in view ownership combinations are different but between spouse ( KKG and GG)?
3. I understand LTCG tax is 20% if cost index is considered. If cost index is not considered is there different tax rate applicable?
4. Assuming in a sale net LTCG is 10 lakh, applicable tax @ 20% is 2 lakh, no other income from any source. Will the assesses has to pays 2 laky? Or benifit of any initial slab (say 1.6 lakh) is deductible/applicable?
5. If the entire sale proceeds invested in specified infra bond for stipulated 3 years, on maturity of bonds, what is the tax implications on interest earned? Are they taxable? Are these bonds available throughout the year?
With best regards
KK Gupta
@KK Gupta
1. Construction by builder where you are buying flat and not constructing yourself will not be considered under definition of "constructed"
You must get possession of flat between one year before sale of old flat or two years after sale.
2. Yes, you can sell A and B and buy D so save income tax. New property D should be in joint names of KKG and GG and their share value should be more than capital gains earned individually from selling A and B.
3. For assets like property, only indexation computation is allowed.
4. If assessee has no other income then there won't be any tax on initial 1.6 lakhs.
5. Interest earned from capital gain bonds will be added to income of persons and will be taxed as per his/her slab rates. Capital gain bonds scheme keep opening from time to time, you will have to track them.
In reply to K.K.Gupta in2 you have stated that capital gains accrued by selling properties A and B he can buy a property D. I request you to clarify whether both the capital gains can be clubbed if it is sold in different financial years
@Vasudeva Rao
There is a 2-3 years period in which new property has to be bought, so if two gains falls in this period, they can be combined to avail tax benefit.
Dear Pankaj,
We have purchased a property in banglore with my mother in law and my mother has 50-50 ownership .we have purchased it in 2010 .Now we have decided to take the whole property by registeration in our name...We have already registerd the property in the same 50/50 share ..Will this new purchase will there be TAX on capital Gain ..Pls reply and thanks for ur help
@Thanzil
As property is transferred in relation, there won't be any capital gain on it and hence no income tax.
Pankaj,
Thanks for helping people like me in answering their queries. The question I have is if I sell my residential house, can I buy just one property with it or more than one? Also, if the sold property is in my name then can I buy new property jointly with my wife (all contribution will be made by me) ?
How will calculate gains be calculated if a plot which I bought in 1977 @Rs. 30,000 and spent money in construction over the years (approx. 20 lakhs) is now being sold for 2.25 crores ? Would I have to buy property of whole 2.25 crores now?
Please advice.
Regards,
@Tushar
In order to save income tax on capital gains, you will have to invest in only a single property. The new property can be on joint name but your share value should be more than capital gains in order to save tax fully.
Calculation like below will have to be done to compute capital gains. Only capital gains will have to be invested to save income tax and not the full selling price.
Purchase Year = 1992-93
Purchase Cost = 400000
Cost Inflation Index (CII) for purchase year = 223
Phase 1 Construction Year = 2004-05
Phase 1 Construction Cost = 1300000
Cost Inflation Index (CII) for Phase 1 Construction year = 480
Phase 2 Construction Year = 2002-03
Phase 2 Construction Cost = 0
Cost Inflation Index (CII) for Phase 2 Construction year = 447
Phase 3 Construction Year = 2005-06
Phase 3 Construction Cost = 0
Cost Inflation Index (CII) for Phase 3 Construction year = 497
Sale Year = 2010-11
Selling price = 15000000
CII for sale year = 711
Indexed Purchase/Construction Cost = 400000 x (711/223) + 1300000 x (711/480) + 0 x (711/447) + 0 x (711/497) = 3200961
Long term capital gain = 15000000 - 3200961 = 11799039
Income tax on capital gain = 11799039 x 20% = 2359807.8
Pankaj,
Thanks a lot for your response. Would I need to do the calculations with year 1977 or would 1992 calculation hold good? I am a bit confused about that part.
Thanks,
Tushar
@Tushar
This was just an example.
You will have to do same from 1977. CII (Cost inflation index) was started from 1981-82 so you will have to assume a fair market value as on 1st April, 1981 and compute from there.
I purchased an independant house in Aug 1999 for Rs 6,90,000 with stampduty and rgn charges of Rs 83,646. I paid Rs 10,000/- to the property broker. I spent Rs Rs 37,000/- for repairs in Oct 1999.
In June 2010 I sold half of it for Rs 12,25,000 and gifted the other half to my elder brother for love and affection. I paid Rs 20,000 to the realestate broker in this transaction.
I purchased a flat in July 2010 for Rs 16,92,000 for which I paid Rs 5,12,000 from the above sale proceeds and Rs 11,80,000 by raising Loan from LICHFL.I have also paid stamp duty etc of Rs 1,26,000/-.
Pl clarify
1. Whether any notional value will be taken for the gift i made to my brother
2. Whether brockerage and repairs incurred on the earlier house and the flat will be taken into consideration while arriving at the capital gain .
3.Can u pl give the caliculation of LTCG in my case
@K J Rao
1. Gift deed can be done to transfer property in relation. There is no need to show notional value for that.
2. Brokerage cannot be considered but repair/re-construction cost be added to cost of flat.
3. Please find below computation of capital gains:
Purchase Year = 1999-00
Purchase Cost = 405323 (computed from (690000+83646+37000)/2)
Cost Inflation Index (CII) for purchase year = 389
Sale Year = 2010-11
Selling price = 1225000
CII for sale year = 711
Indexed Purchase price = 405323 x (711/389) = 740835
Long term capital gain = 1225000 - 740835 = 484165
Income tax on capital gain = 484165 x 20% = 96833
I, an NRI, had purchased a land property in 1994 @ Rs. 40,000/-, spent in tax and converson for Rs. 1,40,000/- and sold it in 2011 @ Rs. 18,00,000/-. How much I have to pay Income Tax? If I want complete Tax Exemption, how much amout of property I have to buy?
Dipu
@Dipu
Please find below capital gains computation:
Purchase Year = 1994-95
Purchase Cost = 180000
Cost Inflation Index (CII) for purchase year = 259
Sale Year = 2010-11
Selling price = 1800000
CII for sale year = 711
Indexed Purchase price = 180000 x (711/259) = 494131
Long term capital gain = 1800000 - 494131 = 1305869
Income tax on capital gain = 1305869 x 20% = 261173.8
To save tax fully, you will have to invest whole sale proceeds (18 lacs) into new residential property as you sold a land property and not a house.