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.
Dear Batra Ji, Thanks for reply, my another question is:i had sold the plantation of paddy to farmers for the worth rupees five lacs in the paddy season grown onto my agricultural land, my question is whether it is agricultural income or not?
@Anish
Yes, it would be agricultural income only.
I have a agriculture plot of 10 guntas which is now in Urban are, if i sell it can i invest in agriculture land.
@M Girish
Yes, you can save tax by investing into agricultural land u/s 54B.
Pankaj Ji,
First of all thanks a lot for a very informative blog to solve the capital gains tax mystery to people like me.
I would like to know what is the acceptable as ‘proof of purchase’ of new residential property using capital gains. To be more specific, is ‘sales deed’ must or an allotment letter from Builder with payment receipts is good enough. Here is the background:
I had sold a property (plot) in on 2nd Arpil 2010. I have opened a Capital Gains Account with SBI in March 2011. Now I have identified a new property (flat) and have made some payments to a highly reputed builder in Pune from the capital gains account. But the agreement (sales deed) is going to take some more time and may not happen till May 2012.
In such a case, I would like to know if the payments made to the builder till March 2012 and allotment letter from builder is acceptable as proof of investment OR sales deed MUST happen before 2nd April 2012 for me to get the capital gain tax exemption.
Thanks and Regards,
Sachin.
@Sachin
In order to get capital gain tax benefit u/s 54F, you should get possession of new property and transfer in your name (through registered deed) before end of two years.
Dear Batra Ji
I had a piece of land ,which i purchased in 230000 now after 5yrs when i am selling it, i m getting 36lac.the problem is that i wish to book a flat for myself so i wanna to know whether the lock period of 3 year will begin from the booking date or when i do my registry for my flat….(the flat is being constructed in my locality it will take near about 2.5 year ) so i wanna ask if the lock period will b consider from registry then the lock period will be 3+2.5=5.5 years is it so ???CAN U PLEASE EXPLAIN ME OUT …
@Sumit
If you want to save income tax on land sale, you must possession and registration of new flat before end of two years from land sale date.
Dear sir,DO I HAVE DO THE REGISTRY WITHIN 2 YRS AS SAID BY U. IF I DEPOSIT THE AMOUNT IN THE CAPITAL GAIN ACCOUNT SCHEME AND DO THE PAYMENT FROM THERE ,CAN I NOT GET THE TIME LIMIT OF THREE YEAR ?
@Sumit
Three years time is only available if you getting your own house constructed. For flat/house/apartment purchased from seller, two years period is allowed.
thank u sir for the reply now i more doubt that if i want to sell that flat which i have purchased from the long term capital gain income is there any lock period for that also or can i sell it after the period of three years ……
@Sumit
If you sell new property, which is purchased to save income tax from long term gains, before three years, exemption from income tax would become invalid.
one of my client Made a sell of Residential flat on which he has made of Rs. 30 lac & that 30 lac has been invested in FD. So is he liable for tax & if not under which section he will be get tax benefit.
@Paresh
There is no tax benefit on investing into normal bank fixed deposit.
To save income tax on capital gains, one has to buy residential house property or invest into capital gain bonds.
hi pankaj,
I WANT TO TELL U THAT I M SOLD OUT THE PROPERTY OF INHERITED AGRICULTURAL LAND IN GUJRAT ON 16-05-2010 IN Rs. 18,00,000/- IN CASH WHICH PROPERTY INHERITED TO ME ON 02-01-1983 ON DEATH OF MY FATHER, NOW IN MARCH-2012 I WANT TO PURCHASE A MORE THAN ONE RESIDENTIAL PROPERTY IN UNDER CONSTRUCTION OF 3 FLATS OF Rs. 6,00,000/- EACH IN THANE. SO PLEASE TELL ME CAN I PURCHASE THE RESIDENTIAL PROPERTY AFTER 18 MONTHS AGAINST THE SELL OF AGRICULTURAL LAND. AND I M LIABLE TO ANY INCOME TAX OR CAPITAL GAIN IN THIS MATTER
THIS AMOUNT OF Rs. 18,00,000/- IS MY CASH IN HAND AND I WAS NOT DEPOSITED IT IN ANY BANK ACCOUNT
@Juned
Income tax on long term capital gain is payable for transfer for property through registered deed where stamp duty is paid.
For all cash transactions, it would be considered black sort of money and cannot be shown for income tax.
To save income tax on capital gains fully, a single residential house property can be bought/constructed for cost more than sale price of old property.
Dear Pankaj,
I have bought a house at mumbai at 8 Laks in 2004 and have bought a new 2 nd house in 2011 for 40 laks. I would like to sell the old house and the present index price is 3300 psqft it will earn me 40 Laks.
can i transfer this loan to the 2 nd house and get the tax exception.
or tell me any other way i can say the tax.
@Rajan
If possession of second house was received within one year before date of transfer of first flat, then you can save income tax on capital gain u/s 54.
mr batra, my mother in law gifted to my wife approx 100 grams gold on 1979. but at that time no documents prepared now if my wife sale the gold f/y 2012 what will be her tax liabilities? how she can avoid tax liabilities?
@Biswajit
Please see below computation for LTCG. Purchase year would be assumed as 1st April, 1981 and gold price on that day was 1670 Rs per 10 gms. Selling price is assumed as 28000 per 10 gms.
Purchase Year = 1981-82, Purchase Cost = 16700, Cost Inflation Index (CII) for purchase year = 100
Sale Year = 2011-12, Selling price = 280000, CII for sale year = 785
Indexed Purchase price = 16700 x (785/100) = 131095
Long term capital gain = 280000 – 131095 = 148905
Income tax on capital gain = 148905 x 20% = 29781
To save income tax on capital gains, either a residential property can be bought/constructed on your wife’s name or investment in capital gain bonds can be done. To save tax fully, whole sale price needs to be invested.
Hi Mr.Pankaj,
I am asking this question for my academic purposes.
If I sell Land (not an agricultural land) and invest those funds in the acquiring the First Residential House property, I can claim the same as Exemption u\s54F.
Here my query is can i acquire the said new house and register the same in my spouse’s name to claim exemption u\s 54F? If i cant claim, then pls provide the supporting info/caselaws/sec/rules in this regard.
Thanks in advance,
Eswar.MK
@Eswar
New property should be on same person’s name who got capital gains (by selling old property) to claim income tax benefit.
If you want to buy new house on your wife’s name, you can transfer land on her name first and let her sell land and earn capital gains.
Sir, My sister was an assessee three years back, now she has left the job and not paying any income tax. My father had bought a residential Site in the year 2000 for Rs. 4 Lacs, and gifted the same to my sister on 17/1/2009. My sister sold the said site on 25/9/2012 for Rs. 18 Lacs. Does it attracts LCG and if yes how much. Now she is trying to purchase a Site or house investing the entire amount. Can she purchase a Site amounting to the said 18 Lacs or can she purchase two sites amounting to Rs. 9 Lacs each or is there any conditions, please answer Sir
@P.Manjunath
See computation for LTCG below:
Purchase Year = 2000-01, Purchase Cost = 400000, Cost Inflation Index (CII) for purchase year = 406
Sale Year = 2011-12, Selling price = 1800000, CII for sale year = 785
Indexed Purchase price = 400000 x (785/406) = 773399
Long term capital gain = 1800000 – 773399 = 1026601
Income tax on capital gain = 1026601 x 20% = 205320.2
She can save this income tax by buying/constructing a residential house property. Tax benefit would be available against a single property purchase and not more than that. In case old property was a house/flat/apartment, she can save tax fully by buying new house/flat/apartment for cost more than 10.3 lakh. In case old property was plot/land, she can save tax fully by buying house/flat/apartment for cost more than 18 lakh.
Hi Pankaj Sir,
Thanks for your article. I am a newbie here and need a small help. We are 2 brothers and have a flat on our mothers name. We intend to sell it off and buy a house each from half the amount that each receives. There have been some talks but I am not sure if they are legally right for 2012 – it is said that the sale of the house will attract capital gains tax irrespective of one buying a house immediately. How true is this? How can we save capital gains if we are to outright buy a house against the sale proceeds?
@Avinash
You can save income tax on capital gains as you are buying another house from sale proceeds u/s 54.
This rule would continue even next year 2012-13 also.
sir my friend have old house purchased during 1975 for Rs 600 only.now he want to sell his house for Rs 25 lacs and as he is handicap he want to invest all his money in bank as fixed deposit and want to get income by way f interest on that FD cz he cant work anymore.What is his tax liability for current year as he dnt want to gt indexed his income.
thanks and regards
charanjeet singh
@Charanjeet
He would need to compute long term gains by indexation method. 20% income tax is payable on that gain.
To save income tax on this gain, either he would need to buy another residential house property, or he can invest gains part into capital gain bonds. He is free to invest remaining sale amount (apart from gains) anywhere.
Hi Pankaj ji,
It’s great blog with valuable information.
I had a flat in Pune and sold in March 12 for 28 lakhs which i bought in 2004 for 650000.I also bought a flat last April in Vizag for 25 lakhs under loan. Can i get exemption from the LTCG tax by paying the 2nd flat home loan in installments which i did most of it from last one year? If not, what is the final date to invest in NHAI Bonds? Thank you very much in advance for your advice.
@Raja
If possession of Vizag flat was taken within one year time before Pune flat sale, no income tax would be payable on long term gains u/s 54F.
Last date for investment in capital gain bonds is six months from date of sale.
Thanks Pankaj ji,
What if the registration of the flat was done before 1 year 1 week?
Can i invest in another residential plot? if i won’t get rebate on my vizag flat?
Kind regards,
Raja
@Raja
If registration was done before one year, it may cause some issue in tax benefit claim.
Income tax rules are not that strict about possession date and in some cases registration and even sale agreement has been assumed as date of purchase.
You can even claim tax benefit if you buy another residential property from gains amount.
Hi Pankaj,
My mum recently sold our ancestors property for 1CR and the entire amount was in the bank for alomst 15 months we have bought another property for 70 lakhs and plan to invest the remaining into Capital gains invest bonds is there a limit to the amount being invested on caipital gains invest bonds as we plan to invest the remaining 30 lakhs into capital gains to avoid income tax being paid.
Do we have to pay any tax due to the delay from what i;m being told this should have been invested within 6 months. are there any tax issues
really appreciate all yr help here .
@Pete
In order to avail tax benefit on long term gains, she should have invested amount into capital gain scheme account before last date of income tax return filing or invested into capital gain bonds within six months of sale.
Now as already 15 months have passed and amount is in bank account only, no tax benefit can be availed.
20% income tax would be payable on long term gains. Plus late payment penalty on this income tax would also be payable due to delay.
Hi Pankaj,
Thank-you very much for yr feedback, I’m trying to get my head round this can we not invest the remaining 30 lakhs into capital gains invest bonds or are there any restrictions now as its over 6 months once the IT and penalty has been paid etc.
Also with the 20% income tax would that be payable on the interest we have received for the 15 months from the bank.
This 20% along with the late payment penalty will be required to be filed as IT returns is there a timescale for this also are there any tax exemptions here as my mum is over 65yrs old i.e sr. citizen.
Lastly what is a capital gains scheme account ? can one invest into this as well
Appreciate all yr help
Kind Regards
Pete
@Pete
In order to claim tax benefit u/s 54EC, Time limit to invest into capital gain bonds is six months from asset sale.
20% income tax would be payable only on long term gains part. Any income received from bank interest would be added to taxable income and taxed as per normal slab rates.
Last date for filing income tax return without late filing penalty would be 31st March.
If your mother does not have any other taxable income, then she can reduce non-taxable part (2.4 lakh) from long term gains and pay 20% income tax on remaining gains.
Capital gains scheme account is an account in which capital gains needs to be deposited, in case one wants to claim tax benefit on residential property purchase u/s 54 or 54F. There is no need to invest into this account now as you have already missed the dates.
Dear Pankaj sir,
It seems you are the one that people are falling back. I have a doubt with respect to some property matters. We had a home in Chhattisgarh, we made it in the year 1991, worth 4 lakhs at that time. Presently we want to sell the house (both myself and dad own it) worth 55 lakhs. Since i came out and got settled in Bangalore, I have currently invested 15 lakh in a new residential flat (took 15 lakhs from my dad earlier this year) Also, my dad is buying a new property in Bhilai worth 30 lakhs. How do you save my capital gains tax , can I divide it among flats in Bangalore and Bhilai. Please help me out.Amit
@Amit
There is long term gains of around 40 lakh on old property sale.
Purchase Year = 1991-92, Purchase Cost = 400000, Cost Inflation Index (CII) for purchase year = 199
Sale Year = 2011-12, Selling price = 5500000, CII for sale year = 785
Indexed Purchase price = 400000 x (785/199) = 1577889
Long term capital gain = 5500000 – 1577889 = 3922111
As property was jointly owned by you and your father, both of you would have around 20 lakh of gains.
To save income tax on this gain fully, both of you can buy/construct a residential house property for value more than 20 lakh.
You can claim exemption for Bangalore property and your father can do same for Bhilai property.
Possession for new property should have been taken within one year before and two years after sale of Chattisgarh house.
Hi Pankaj sir,
We purchased a residential land which in 2002-3 for 2,50,000/-. now we sold it for 43,00,000 and purchased an agricultural land worth 45,00,000/-. Are we still need to pay long term capital gain tax?
@Kiran
If sold asset is not agricultural land, there is no tax benefit on purchase of a agricultural land from sale proceeds.
You would need to pay income tax on long term gains.
Where an assessee (husband) sold the a residential property owned solely by him and purchased another single residential property (with all capital gain amount) in the name of his wife and him (50:50), will capital gain exemption is allowed during tax return?
Please help.
@Shweta
There won’t be any issue in case of new property bought in joint names. If amount more than capital gains have been invested by husband in new purchase, no income tax would be payable on gains.
hi
I sold my flat in this current financal year.
I would like to pay my capital gain tax on hthis sale
Pls confirm me which form /challan i need to submit/fill
Rgds
@Suresh
You should choose following choices while paying tax online: 1. CHALLAN NO./ITNS 280 2.(0021)INCOME-TAX (OTHER THAN COMPANIES) 3.(300)SELF ASSESSMENT TAX
My husband purchased plot in July 2008 for RS 1200000/- he gave it to developer for development in July 2009. in consideration for that we received one flat . plot size is 303sq meter./ flat size is 1800 sq ft. Builder made construction on the plot of 6000 sq ft. We receive possession of flat in march 2011. that time flat value was Rs 1500/- per sq ft. i.e. 1800*1000 = 1800000/- what will be tax consequences. For which Assessment Year?
@Madhura
It may be considered as plot sale and flat purchase.
Tax consequences and assessment year would be decided based on dates when plot was transferred to developer’s name and when possession was received.
As all these happened within less than three years from plot purchase, it would be short term gains. Such gains would be added to taxable income and taxed as per slab rates.
Short term gains would be = price of plot mentioned on registered sale deed – buying price (1200000).
Dear Sir,
I plan to sell flat in April 2012 which was purchase in jan 2008. will this transcation have capital gain tax? what type of property (flat or land) to be purchased to avoid tax? Do I have to deposit money in special bank account?
Regards
RG
@RG
It would be long term gains and such gains with indexation computation would be taxable @ 20% rate.
In order to avoid this income tax fully, you can either buy/construct a residential house property (not land) u/s 54 or invest into capital gain bonds u/s 54EC.
If new property is not purchased/constructed before last date of return filing for year in which gains occurred (31st July, 2013 in your case), gains have to be invested into capital gain scheme accounts.