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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I had bought a HUDA's Land in Feb 2007 and sold off in May 2011.
Purchase Price was : 3,28,500/-
Sale Price is : 36,60,000/-
1.Kindly let me know what'll be my capital gain tax.
2. Will Indexing start from the time when i had started paying installment on it or not.
3. Registry fee, penalty will also be included in purchase value while indexing or not
4. If I'll buy a plot of Rs. 20,00,000 and do construction on that of amounting Rs. 10,00,000/- than on what amount I'll get tax exemption can you please eleborate with example.
5. If I am saying that I'll invest 10,00,000 on construction than how can i prove this to tax authority that i have invested the same on construction.
6. If same person own a gifted property than will he/she will be eligible for capital gain tax exemption, yes or no.
@Jyoti
Below is the indicative tax computation. Please note that CII for 2011-12 has not been declared yet, so below calculation has been done with CII for 2010-11.
Purchase Year = 2006-07
Purchase Cost = 328500
Cost Inflation Index (CII) for purchase year = 519
Sale Year = 2010-11
Selling price = 3660000
CII for sale year = 711
Indexed Purchase price = 328500 x (711/519) = 450026
Long term capital gain = 3660000 - 450026 = 3209974
Income tax on capital gain = 3209974 x 20% = 641994.8
2. Purchase year will be considered for indexation calculations.
3. Registry fee can be included in purchase cost.
4. You will have to spend more than 36.6 lacs on new plot and construction to make whole capital gains non-taxable.
5. You should be having payment bills to builder or building material suppliers/contractor.
6. If you already own more than one property at the time of new land purchase, then tax exemption cannot be availed.
Dear Pankaj please note I hold shares of a private limited company some are nearly 5 year old and some are less than 3 year old, if I sell them at a big premium do I have to pay 20% after indexation on LONG TERM holdings or I can opt for 10% tax without indexation. ?
Is there any other option to reduce tax liability for LONG TERM and SHort term gain our of sale of shares of Private limited company ( unlisted)
@Ravi
Without indexation computation is only available for debt based mutual funds, so you will have to compute gain by indexation only.
Income tax on long term capital gains can be avoided by investing the whole sale proceeds into a residential property (u/s 54F) or into capital gain bonds (u/s 54EC).
Short term gain will be added to your taxable income and will be taxed as per your tax slab. There is no way to save income tax on this.
refer your reply to Jyoti on 21st may...point 6
"If you already own more than one property at the time of new land purchase, then tax exemption cannot be availed."
Does already own MORE THAN ONE property mean I should not have ANY OTHER property apart from the new property I am buying OR that I cannot have 2 pre-existing properties on the date of sale.Please clarify.
@Vikaskuks
As per section 54F, In order to save capital gain earned from selling plot, you will have to purchase a new residential property (1 year before transfer or 2 years after transfer) or get a residential house constructed within 3 years from the date of transfer. New investment should be equal or greater than the amount of Net consideration (selling price of plot). Also the person can hold only one house property other than the new exempted asset at time of buying new exempted property.
Also make sure that you don’t buy any other new house property within 1 year from the date of transfer or constructs a new house property from 3 years from date of transfer other than the exempted asset.
Pankaj, thanks for your update on the LTCG,
I have 4.8 lakhs business income and 2.5 lakhs LTCG, is it 10% tax for the Business Income and 20% tax for LTCG.
@Sadha
Business income will be taxed as per your tax slab rates after making profit-loss accounts.
LTCG will be taxed flat @ 20%.
hi Pankaj,
I am selling a 1BHk flat based in mumbai for Rs.30,60,000 which I bought in 2002 for Rs.5,40,000
I am planning to buy a property worth 30,00,000 in mangalore, and part of which i wish go on loan upto 50%.
Now i want to know whether, I am due for any capital gains? please let me know
Regards,
Deepak
@Deepak
As you are buying a new property for amount more than capital gains, there won't be any income tax payable on capital gains earned out of 1 BHK flat sale.
Hi Panjak,
Thank you very much for prompt response.
I am planning to go for a home loan of rs.15,00,000 and utilise rs.15,00,000 cash received from sale of 1bhk and use the rest for doing interiors of new flat
so i will still be exempt from capital gains or i will have to pay tax for rs.15,00,000? because then i am not using it for buying the house even though i am going for a loan of 15,00,000 towards my second home
@Deepak
It should not be an issue to pay by loan or from your own funds unless you buy a new flat for a value more than 21-22 lacs (around this amount will be your capital gain from old flat).
Dear Pankaj,
i have sold a plot purchased 10 years back, purchase registry value 45000 and the sale registry value 10 lacs, i think the capital gains are applicable, secobdly i had purchased a flat 1.5 years back for 25 lacs with the funds sourced thru Loan but incidently registry of this house is yet pending, what shall be the effective tax liability.
@Brijesh
As you sold a plot, long term capital gain is applicable and income tax is payable on same @ 20%.
If you can want to save income tax on it, it can be done under section 54F and 54EC.
As per 54F, if your purchase a new residential property for a value more than selling price of plot in time period between one year before sale of plot and two years after sale, then there won't be any income tax payable.
You can consider date of registry or date of possession of new house as date of acquisition and claim exemption for the same.
If someone sells a residential plot(govt) and has to pay long term capital gains tax for it.
Q: Is it possible to avoid this tax by purchasing flats,villas,agri land etc or is it necessary to buy a residential plot only??
Q: Does this investment has to be of the same amount that he/she got after the selling of the property?
Q: Can he/she buy property at two places i.e. two plots of land,flats etc or only one can be purchased??
Q: Is it so that capital gains tax is once a lifetime issue or has to be paid everytime one sells a property after more than three years??
@Sanghya
1. Its possible to avoid income tax on capital gain arising due to sale of plot. It can be done either by buying a new residential house (flat/villa/floor) or constructing a new house on land. If you buy residential land, there won't be any exemption unless you also get house constructed on same.
2. In case of gains from residential plot, whole consideration amount (selling price) has to be invested into new property. If a less amount is invested, capital gain tax will be payable on difference amount.
3. Only one new residential property has to be purchased. Moreover under 54F, this exemption is only applicable if you don't own more than one property at the time of buying new property and also you cannot buy a new property for next three years.
4. Capital gain tax arises every-time with every capital asset you sell (whether its house, land, gold, non listed company stocks etc.).
I purchasd a plot in delhi in 1995 for around 3.5 Lakhs and sold it for 20 lakhs in July 2010.
1. To avoid tax, i have to purchase a new property by july 2011 or july 2012 ?
2. till the time i purchase new property can i use these funds for some other purpose or do i have to keep it in a seperate bank account?
3. if i purchase a builder flat for say 30 lakhs and pay 8 lakhs now and rest in next 3 years will i still be able to save tax or i have to invest full 20 lakhs before the dew date?
@Amit Bhatia
1. You will have to purchase a residential property by July 2012.
2. Till the new property is purchased capital gains have to be kept into a Capital Gain Scheme account only.
3. In order to save tax fully, you will have to invest full 20 lacs within two years.
Dear Mr.Pankaj
It is gratifying to note that you are responding to queries from laymen.
There are two shareholders having 50% stake each in a Private Limited Company. They are holding the Equity Shares from 2000. They have decided to sell their shares now ie: in the financial year 2011-2012. Each one will get Rs.50,00,000 on their shareholding of 50,000. The purchase price of these shares was at Rs.10 ie Rs 5,00,000. They have not decided about purchasing the new property yet. However, they wish to deposit the amount in Capital Gains bonds such as Rural Electrfication Scheme etc within a period of 6 months from the date of saleas they wish to avoid paying long term capital gains tax.
Suppose they sell the shares now in June, 2011:-
1. whether the deposit is to be made before July,2011 or before Dec 2011?
2. whether there will be indexation of value of the shares?
3. assuming there is no indexation benefits, they are prepared to deposit the amount initially in the prescribed Bonds. Until what time they can look around to purchase a new property?
@Narayan
1. Capital gain bonds have to be bought before end of 6 months from date of transfer of capital asset.
2. Yes, indexation benefit can be availed. You need to compute capital gain with indexed purchase price.
3. If they are interested in buying a residential property to save income tax, they must invest the amount into capital gain account scheme. This money have to be used within three years from date of transfer of capital asset.
I have bought in May 2003 at 13 lacs and sold in Mar 2011 at 40 lacs. What shall be the capital gain tax? What money I have to deposit in Capital Gain Account? Profit or Sale Price?
@Vikas
Below is the computation for capital gains:
Purchase Year = 2003-04
Purchase Cost = 1300000
Cost Inflation Index (CII) for purchase year = 463
Sale Year = 2010-11
Selling price = 4000000
CII for sale year = 711
Indexed Purchase price = 1300000 x (711/463) = 1996328
Long term capital gain = 4000000 - 1996328 = 2003672
Income tax on capital gain = 2003672 x 20% = 400734.4
You will have to deposit capital gain (2003672) into capital gain account scheme.
Hi Pankaj,
Thanks for helping people like us understand the taxes. I am an NRI since 2009. I bought a flat for 10L in 2004 and selling it now (2011) for 42L. What will be my LTCG?
@Raj Singh
Below is an indicative computation of capital gains and income tax. Please note that CII is not declared yet for 2011-12 and hence in below calculations, CII for 2010-11 is taken.
Purchase Year = 2004-05
Purchase Cost = 1000000
Cost Inflation Index (CII) for purchase year = 480
Sale Year = 2010-11
Selling price = 4200000
CII for sale year = 711
Indexed Purchase price = 1000000 x (711/480) = 1481250
Long term capital gain = 4200000 - 1481250 = 2718750
Income tax on capital gain = 2718750 x 20% = 543750