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 have got a share of 7.45 lacks after parents property sale in this June-11. Since my parents bought this property in 2004 (In my father and Mother name) and sale of property fetched capital gains to my mother, brother, sister and me according to the share we got after the sad demise of my father in 2008.( 5/8 of mother and 1/8th for me, brother and sister).
I intend to pay the capital gain tax, as i am urgently in need of money for some other purpose.
Plz advise what is the last date of paying the LTCG for me for the share i got from sale of property in June-2011.
Regards
@Sandeep
Your query has been already answered at http://www.socialfinance.in/questions/1000/long-term-capital-gain
My Father had booked a plot with a company. THe company was to procure land but it went into legal hassles and could not get the land. The company even tried in the court to secure land but lost the case. Now, they are refunding the amount, my question is, will the refunded amount come under capital gains tax as they are paying around 7 times the amount they got from us. The company is getting the money back from farmers who initially agreed to selling the land and later retreated.
My father is selling a house. He bought the land for Rs 29000/- in 1982. The house was constructed on this land in 1989 at the cost of of Rs 7.5 lac. The house is being sold for Rs 1.88cr. He is planning to buy a new apartment for Rs 60 lac. How much capital gains tax does he have to pay? Is there anyway to reduce the tax liability like a bond etc.
@Akash
Below is computation for capital gains and income tax:
Purchase Year = 1982-83, Purchase Cost = 290000, Cost Inflation Index (CII) for purchase year = 109
Construction Year = 1989-90, Construction Cost = 750000, Cost Inflation Index (CII) for Construction year = 172
Sale Year = 2011-12, Selling price = 18800000, CII for sale year = 785
Indexed Purchase/Construction Cost = 290000 x (785/109) + 750000 x (785/172) = 5511497
Long term capital gain = 18800000 - 5511497 = 13288503
Income tax on capital gain = 13288503 x 20% = 2657700.6
If your father purchases a new apartment for Rs 60 lacs, he will have to pay 20% income tax on remaining gains (133 - 60 = 73 lacs).
As your father is already buying a flat, he cannot buy anymore to save tax. Full tax can be saved if instead of a 60 lacs house, he buys a house for at-least 1.33 crore.
Other way to save income tax is to buy capital gain bonds. Maximum investment in these bonds can be only 50 lakhs in a financial year.
Dear Pankajji, thank you for your expert advice on IT rules with regard to Capital Gains. I had a plot of 5000Sq ft in my name and my wife's name purchased for 630000/- in the year 2006 and sold the plot this year in May-2011 for 50,000,00/- and i already registered a flat worth Rs 4860000/- in my and my wife's name in April 2011 and now i m residing in my own Flat and its in my name... Plz advice
@Arya
As you already purchased a flat within time frame of one year before selling plot, you can get income tax benefit under section 54F.
Income won't be saved fully as new flat cost is somewhat less than plot sale consideration amount.
Income tax will be charged @ 20% on amount = capital gains - capital gains x (new flat cost/plot sale consideration)
There are some conditions on availing this tax benefit under section 54F:
1. you cannot own more than one residential properties at the time of buying new property. In case you own total maximum two residential properties (including new one), exemption will be available.
2. You cannot sell this new property for next three years and cannot buy another residential property for next three years.
i am already having a flat in my name that i purchased in 2002... so still i can get the tax benefit on this new flat. Plz Explain...??
@Arya
You can get tax benefit as you already own only a single residential property.
If it would have been two, you could not have.
sir,
my mom is selling a plot of land for 75 lakhs and equally shared by my sister and me. If i use the share for buying a house in my name, would i still be liable to pay LTCG for my share
thanks in advance,
@Subha
As your mom is selling plot (assuming that plot is on her name), she is liable to pay income tax on the gains.
In order to save tax on LTCG, new house must be bought on same person's name who is selling it.
i have sold a flat in march 2011 @ 1 crore, which i bought in 2005 @ 25 lakh.
i want to know, can i have exemption from long term capital gain tax, under section 54
if i repay the loans of an existing house that i bought in august 2010?
@Gitansh
You can save income tax on the long term capital gains under section 54, as you bought another house in August 2010 (which is less than one year prior to selling old flat).
To save tax fully, new house cost must be more than 64.3 lacs (long term gains from old flat).
It cost 72 lacs
Can i repay loans of this flat, by the profit of sale of old flat? Will i have to give TAX?
@Gitansh
Yes, you can repay loan from this amount. No tax needs to be paid for the gains.
Hi Pankaj, my dad has a residential home (currently living) and a residential plot. He is planning to sell the plot worth 1 Cr and invest the amount in a residential house (0.7 Cr) and a residential plot (0.3 Cr). As per my calculation using the index, about 0.8 Cr would be considered for LTCG tax. Can you please let me know whether the plot being bought would also provide relief to the LTCG, or is it just the house? In case the plot is replaced by another house of the same amount, will it make any difference to the amount being taxed?
@VJ
As your father is selling a plot, for exemption purpose, section 54F can apply.
To save income tax fully, a new residential house should be purchased with cost more than value of sale consideration (1 crore).
Exemption can only be available by buying one property and not for more than one. Moreover new property has to be a built-up house or a new house must be constructed on it if plot is bought.
Your father will have to pay income tax on 0.8 Cr - ( 0.8 x (0.7/1.0)) = 24 lacs @ 20%
Also, there is also some more conditions to this exemption under 54F, your father cannot buy any more residential house in next three years and cannot sell newly bought house for three years. Also your father should not be owning more than one residential property at the time of buying new house.
Impressed by your prompt and useful response! Also, wanted to further understand few things:
1. If my dad wants to buy the house in my mom's name or my name, would the same exemption mentioned above apply?
2. If my dad plans to split the existing plot into two halves and sell only one half (about 50 lakhs, for which 40 lakhs will be considered for LTCG) can he benefit from 54f still, since he would have one residential property (currently residing) and one plot (the remaining half) when buys the new house?
@VJ
1. New property should be on same person's name who is getting tax deductions.
2. Ownership conditions applies only for built-up residential properties (house/flat/apartment) and not for plot. So your father can avail deductions as per 54F.
Thanks for the quick response. In the response to my first post, when you have calculated taxable amount as 0.8Cr - (0.8* (0.7/1.0)) = 24 lakhs, I would have expected tax would be paid only on 0.8 - 0.7 Cr = 10 lakhs. (I have seen this second type of calculations in your other posts and hence the query) Have I mis-understood?
@VJ
As a plot is being sold and not a residential house, section 54F is applicable here.
Under 54F, whole sale consideration amount needs to be invested into new property to save tax fully. In case less amount is invested, exemption will be available in the same ratio.
Thanks Pankaj. Also wanted to know when the LTCG tax has to be paid. For example, the sale transaction is done in FY 2011-12. The new house is bought in FY 2013-14 (within 2 years time frame) and there is some capital which remains and hence subject to tax. Now the questions -
1. Does tax need to be paid in AY 2012-13 itself or it needs to be paid in AY 2014-15?
2. In case of AY 2014-15, do we need to pay the tax slab available at that time (assuming DTC will be in place then) or with the current flat slab of 20% of LTCG?
@VJ
1. Tax on unused sale consideration will have to paid by 31st March, 2014, if new property is bought in FY 2013-14.
Whole sale consideration amount has to be deposited to capital gain account scheme before filing of income tax return of the year in which capital gain occurred. Amount towards new property has to be paid from this account only and closure of this account requires approval from assessing officer.
2. I believe tax will have to be paid by current slab rates.
Thanks for the details. I was not aware of the capital gain account scheme. Is this something like a special type of account in a bank? Will interest be given on the amount in the account?
@VJ
You can open capital gain scheme account in any of the Govt banks.
Read more on State bank of bikaner and Bank of India website.
There are two type of accounts available, 1. Savings 2. term deposit.
Interest as per savings bank account and term deposit will be provided depending on type of account opened.
Thanks for the details. Also, is it possible to spend the remaining amount on the repairs of the newly bought house or the existing residence and claim exemption on it?
@VJ
Remaining amount can be spent on structural modifications/additions to newly bought house as it would then include in new house construction cost.
Thanks for the reply and one last query (hopefully!) on this topic - Can my dad buy the house as a join owner with me and still avail the LTCG exemption? If so does he need to specify how much is his share (in Rupees) in the property? If so where does he need to mention that?
@VJ
Yes, your father can buy house as a joint owner with you. He will be able to claim LTCG exemption on his share of cost.
Ownership ratio is generally mentioned in property registration documents and his share can be computed from there.
dear sir, my mother sold a residential building on april 2010 for RS.60 lakhs. the building was constructed in 1992 after availing a loan of rs.3 lakh plus her own savings. the cost of the land was rs.55,000/- and cost of construction was around rs.5,50,000/-. the loan was cleared in the year 2000.
now she wants to buy a land for rs.9 lakhs and thereafter construct a building in the land. cost of construction is estimated to be around rs.20 lakhs.
how much tax on capital gain will she have to pay?
@Nilesh
Please find LTCG computation below:
Purchase Year = 1992-93, Purchase Cost = 605000, Cost Inflation Index (CII) for purchase year = 223
Sale Year = 2010-11, Selling price = 6000000, CII for sale year = 711
Indexed Purchase price = 605000 x (711/223) = 1928946
Long term capital gain = 6000000 - 1928946 = 4071054
Income tax on capital gain = 4071054 x 20% = 814210.8
In case only 29 lakhs are invested into a new residential property, 20% tax will have to be paid on remaining capital gains.
20% of (4071054-2900000) = Around 2.34 lakh income tax will be payable.
sir, thank you for your reply.
I am planning to sale residential house in my native in my spouse name.I shall buy another one with addition of some amount with the help of my child's name and contribution. How to decide the share of ownership and does it include the documents of purchases? Do we have to open a separate bank account for receipt of sale & buy transaction or we can deposit in any of our routine savings account?What precautions needed to get LTCGain exemption?
@Bipinvyas
New house should be in the name of same person (fully or joint owner) who is selling old house and availing tax benefits.
To save tax fully, new house cost should be more than capital gains earned from selling old one. If new house is jointly owned with other person, then the cost of his/her share must be more than capital gains earned.
If new house is not bought before filing of income tax return for FY, in which capital gain is earned, capital gain amount has to be deposited in a capital gain account scheme account. Payments towards new house should be made from this account.
Many Thanks for Reply.My old house is going at 8Lac - 1.40Lac is cost price.This is in names of A, B i.e. wife & husband.Now new house I shall buy within 3 months at 13Lac by adding names of C & D,each contributing 3 Lac.Is this OK?Or any other amount?Please suggest and obliged.
@Bipinvyas
Without old house purchase year, it won't be possible to compute long term capital gains on it.
But as per figures provided by you, LCTG on old house sale won't be maximum 6 lacs (if purchase year assumed as 2007-08).
So each one of A and B, will have 3 lacs of capital gains.
As they are already investing 3 lacs each in a new property, no income tax would be payable on long term gains.
Thank you sir.Please check calculation done by me is correct? Purchase in MAR2000@ 1.35L. In NOV 01 5k is paid duty. Index Purchase Price =(785/389*1.35L) = 2.72L.+ Index cost Exp= (785/426)*5k = 9k. Now if I sale @ 8 Lac - 2.82 (2.72+0.09)= 5.18 L will be LTCG. Now if I buy new House @ 13L and invest this 8L fully + additional amount by 2 sons will it be OK if they contribute 2.60 Lac each? i.e. (LTCG 5.18 / 2) Can we include Municipal Taxes paid during these years as expenses? If 1st holder remain the same sequence is not important?Please correct me if I am wrong.Lastly,if I deposit in your ICICI Bk or Kotak Bk A/c is there any minimum amt to pay? Pl give your mail ID to inform you.
@Bipinvyas
Your calculations are correct for long term capital gains.
Only issue that may arise that purchase date will be considered as registration date in most of the cases. If in March 2000, you got possession but did not get registration, it may not be considered, unless there were some unavoidable circumstances due to which registration could not be done.
As per the calculations, LTCG comes out as 5.18L, so if yours and your wife's share in new house is costing more than 2.59L, no income tax would be payable.
Apart from this, it does not matter who contributes how much.
Municipal taxes paid won't be considered as expense in cost. Holder sequence is not important here.
You can any amount deposit to any of the ICICI or Kotak bank account. It won't be any issue. you can email at pankaj at pankajbatra.com
Thank you for the reply. You said,"it does not matter who contributes how much." But in first reply you mentioned,"If new house is jointly owned with other person, then the cost of his/her share must be more than capital gains earned."Hence I am planning this way.Please clarify and obliged.
@Bipnvyas
Sorry for the confusion.
If new house is jointly owned with other person(s), then the cost of assessee share must be more than capital gains earned to save tax fully. For other holders in property (other than assessee, your two sons) investment amount does not matter here.
I had written "Apart from this, it does not matter who contributes how much." means apart from assessee, it does not matter who contributes how much.
Assessee is person who gains out of selling old property.
I have a similar situation. My mother will have abt 50,00,000 of long term capital gain. So if we buy two flats (together costing Rs110,00,000) where she is joint owner (no share mentioned but assume 50:50) we can save entire LTCG. Is it correct? She doesn't own any other property.
@Neeti
Tax benefit can only be taken for investment in one house property. If two houses are bought, only one will be considered.
Hello Sir,
Kindly advice me whether site purchased and house built thereon both have to complete 3 years for it to be computed as LTCG? I am selling a house which has completed 2 yrs built on a site which has completed 3 years. I am told I need to show them differently in the sale deed and compute tax differently as the site would be LTCG and building would be STCG. Eagerly awaiting your valuable advice.
@Rohith
There have been supreme and high court judgments ((1967) 65ITR 377 and (1993)201 ITR 442) to follow this rule of considering plot and building as different assets.
If you have purchased plot more than 3 years back and constructed building on it less than 3 years back then the gain arising on sale of plot shall belong term capital gain and the benefit of indexation shall be given on it whereas the gain arising on sale of building shall be short term capital gain and will be added to the income of the assessee. Therefore both should be calculated separately. Its advisable to get sale deed of plot and building done separately for showing appropriate valuations.