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.
I bought a HUDA plot at Bahadurgarh in Haryana for 4.5 lac in 4/2004. Now, I intend to sell it and purchase agricultural land out of the proceeds. What is the IT liability in this case? What is the best way to avoid tax?
@Vinod
There would not be any tax benefit on purchase of agricultural land.
If you want to save tax on LTCG, you would need to invest into a residential house property u/s 54F or into capital gain bonds u/s 54EC.
Hi,
Purchase date – 14/12/2007
Purchase price:= Paid to builder: 2017160, Stamp duty: 83510, Registration: 20200
Sale date: 13/04/2012
Sale price: 2900000
Commission paid to agent: 64000
I have another apartment where I live at the time of buying and selling of this apartment. In that case, am eligible to save tax by investment?
Is this short or long term gain?
What indexed purchase price:
What is capital gain?
What is tax?
Regards
RG
@RG
There won’t be any gains from this sale. As per LTCG computation, it would result in long term capital loss.
Purchase Year = 2007-08, Purchase Cost = 2120870, Cost Inflation Index (CII) for purchase year = 551
Sale Year = 2012-13, Selling price = 2836000, CII for sale year = 850 (Assumed, as its not declared yet)
Indexed Purchase price = 2120870 x (850/551) = 3271760
Long term capital gain = 2836000 – 3271760 = -435760
Hi Pankaj,
Should depreciation of flat/apartment be deducted from sale amount for calculation of capital gain?
Regards
RG
@RG
Depreciation of flat/apartment cannot be deducted for capital gain computation.
Can I buy any residential flat/land anywhere in India for availing LTCG.
@Mukesh
You can buy residential house property anywhere in India for tax benefits u/s 54/54F.
In case land is bought, a house must be constructed on it.
Can I use the sale proceed money for my business for short term and then buy the property to avail LTCP
@Mukesh
You can use amount for any purpose before last date of income tax return filing for Financial year in which gains occurred. If possession for new property is not taken before this date, amount needs to be deposited to capital gain scheme account.
Thanks for reply. The other question is could i (individual Capacity) gift the amount to my own HUF, & what would be the Income tax position on the interest income over gifted amount which i got from the bank in my HUF FDR’s?
@Anish
There won’t be any income tax on gift received by HUF from its own member.
But income received on this gift’s investment would be taxable as usual for HUF.
Sir,
I have deposited the Capital gain amount in the Capital gain account in a bank.I have booked a flat delivery of which is assured by March 2014-time frame of 2 years for the purchase of a dwelling unit.Supposing the Flat is not given possession or registered in my name though allotment letter is given,agreement entered and total money paid directly to the builder from my Capital Gain account.
Thanks
JP Singh
@JP Singh
If possession is not received within two years, exemption would not be available.
But in some court cases, some assessee have won cases by showing other documents like registration, allotment letter and proving that it was out of their control .
Hi Pankaj,
I bought a residential flat in Indirapuram Ghaziabad for 18.5 Lacs (Registered Amount was 16.5 Lacs) on Jan 2008 and then sold it on Mar 2012 for 28 Lacs.
Meanwhile, I had booked another NEW residential flat in Noida under construction on Nov 2010 for 45 Lacs and got allotment letter. By, March 2012, I had paid some 27 Lacs in new house construction.
After I sold, total money I got after home loan clearance was around 12 Lacs. Out of it, I had paid 5.1 Lacs to Noida flat builder for construction on Mar 2012. I still have some 10 lacs pending for new house. I plan to spend rest 7 lacs (from sold of old flat) into this new flat demand. I expect the possession by Oct-2013 of new house.
Please confirm, if LTPG is already saved in my scenario.
Thanks,
Vijay
@Vijay
As you are getting new flat possession within two years of old flat sale and new flat cost is more than long term gains (4.5 lakh), there won’t be any income tax payable as per section 54.
But as possession is not received by 31st July 2012, make sure to invest 4.5 lakh (gains) into capital gain scheme account and pay builder from there.
Pankaj ji, it’s a great blog.
I am going to sell (execute registry in favour of buyer) of my NOIDA authority flat on 10.05.12 and LTCG of this flat are Rs. 20 lakhs.
Further, I had booked another flat costing Rs. 35 lakhs with a builder for which I have already paid Rs. 25 lakhs from 08.08.10 to 30.04.12 i.e. the payments to builder started approx 2 years before sale of my NOIDA authority flat. Possession of this builder flat will certainly be before two years of sale of my NOIDA authority’s flat.
Will I get LTCG considering the facts that I started paying to the builder two years before sale of my flat and how much exemption will be available to me.
@Dev Dutt
You can get tax benefit on new purchase if possession is received within two years from sale of old flat.
Pankaj ji, I understand that I will get the exemption irrespective of flat that I had booked another flat costing Rs. 35 lakhs with a builder for which I have already paid Rs. 25 lakhs from 08.08.10 to 30.04.12.
@Dev Dutt
As long as you get possession for new flat between 11-05-2011 and 09-05-2014, you would be eligible for tax benefit.
New property cost is more than long term gains, so income tax would be zero.
Make sure to deposit unused gains into capital gain scheme account in case possession is not received before 31st July 2013 (last date of income tax return filing).
HI PANKAJ,
I PURCHASED ONE FLAT IN NAVIMUMBAI AT 15.5LAKH IN 2007-DEC WHICH INCLUDED 13LAKH FROM BANK LOAN AND OTHER AMOUNT INCLUDES REGN AND STAMPDUTY CHARGES AND 1.5 LAKH CHEQUE PAID TO BUILDER..SO TOTALLY IT WAS IN WHITE MONEY.
NOW IN 2012-APR I AM GOING TO SELL FLAT IT FOR 25 LAKH, SO WHAT WILL BE LONG TERM CAPITAL GAIN IN THIS CASE AND IS THERE ANY RISK IF MY NEW PURCHASER WILL PAY DIRECTLY MY LOAN AMOUNT OUTSTANDING TO MY HOME LOAN A/C BANK ..ANY TAX DEDUCTION FROM BANK….IS THERE ANY RISK OF TAKING BIG AMOUNT CHEQUE FROM PURCHASER ?WHETHER IT SHOULD BE SPLITTED TO SMALL AMOUNTS??OR WHETHER CASH CAN BE TAKEN WITHOUT ANY RISK???PLZ LET ME KNOW URGENT..
@Manoj
CII for 2012-13 has not been declared yet, so long term gains cannot be computed for this sale as of now.
Considering CII for 2011-12, Gains would be around 2.9 lakh.
If we consider around 8% increase in CII for 2012-13, gains would be reduced to just around 1 lakh.
It would be better to get amount through cheque and same cheque number should be quoted in registered sale deed. Accepting cash has various risks, including it being labeled as black money.
Thanks a lot Pankaj. It gave me piece of mind and confirmed understanding. Also, may I assume to deposit whole 12 Lacs amount to CGS account or just the Gains amount ( as you said 4.5Lacs). Also, as per my calculation following CII rate and my buy/sale figures. The difference amount (gain) was 3.5 Lacs, so tax would be some 70K. Please clarify.
Thanks,
Pankaj
@Vijay
You will have to invest only gains part into CGAS and not full sale amount.
Income tax would be 20% of long term gains.
Pankaj,
I have some land that I purchased back in 2006 and want to sell now. Can I reinvest the money in another land or residential property to avoid LTCG tax? I have one other residence in my name. I wasn’t sure if the criteria that applied to selling residential flats also applied to land. The land is in Chennai outskirts, classified as a Residential area but not under the CMDA (chennai’s town planning authority).
Thanks,
@Siva
Under section 54F, you can reinvest into a residential house property to save income tax on LTCG.
In case you own more than one residential house properties at the time of land sale, you won’t be eligible for section 54F exemption.
i boght agriculture land in2000 for 1 lac. then area came in to urban area.in 2012 i sold 5000 sq ft i mean half of total for 51 lacs. how i can save tax. how much is my tax liability.i have bought 2 agriculture lands 1.inmarch 2011 for 10 lacs.another in april for 10 lacs.
@Dr V Laxmi Singh
As purchase price was pretty low, almost whole of sale price would become long term gains (49-50 lakh).
This gain would be taxable at 20% rate.
To save income tax on this gains, either you can buy a residential house property or agricultural land or invest into capital gain bonds.
SIR
I PURCHASED AGRCULTUER LAND IN MAY 2009IN 350000 NOW I SALE IT IN JUNE 2012AT COST OF 800000 HOW MUCH TAX I HAVE TO GIVE IF I PURCHASE RESIDENTIAL LAND THEN CAN IT HELP ME IN SAVING TAX
@Dr Kamlesh
CII for 2012-13 has not been declared yet.
Considering CII for 2012-13 as 850, please see LTCG and income tax computation below:
Purchase Year = 2009-10, Purchase Cost = 350000, Cost Inflation Index (CII) for purchase year = 632
Sale Year = 2012-13, Selling price = 800000, CII for sale year = 850
Indexed Purchase price = 350000 x (850/632) = 470728
Long term capital gain = 800000 – 470728 = 329272
Income tax on capital gain = 329272 x 20% = 65854.4
There is no tax benefit on purchase of residential land. If you buy residential house property then income tax can be saved u/s 54F.
my brother purchased a site(urban site) in bangalore of Ra.300000/- in 1994. now April 2012, he has to sell the Site of Rs.3350000/-. here save the income tax he is ready to purchase an another site (different area) in Bangalore. now he eligible u/s 54 or 54B of the IT Act?
@Mallikarjuna
If site being sold is not a residential house property (built-up flat/house/apartment), then section 54F can be used for tax benefits. Else section 54 can be used.
In case site is agricultural land, then only section 54B can be used.
Hi,
I am selling my old home for 30 lakh and buying new home at 47 lakh , my long term capital gain from old home come out to be 13 lakh.
i want to ask , if i invest my long term capital gain i.e 13 lakh in buying new property then remaining is 30-13 = 17 lakh , do i need to pays separate income tax on these 17 lakhs as per my income slab?
@Yatin
Income tax is only payable on long term gain and not on full sale consideration amount.
Further as you are buying a new house for value more than long term gains, you need not to pay any income tax on long term gains u/s 54.
I have purchased flat @33 lac in june 2010 which is under construction , now i want to sell it and buy new ready to move flat of higher cost , will i be liable for any LTCG tax … what are my options … Thanks in advance
@Ramesh
As the flat is being sold before three years, gains would be short term. Whole such gains (selling price – purchase cost) would be added to your taxable income and taxed as per your income tax slab rates. There is no option to save income tax on such gains.
Indian born US Citizen. Parents (soon to be GC holders) want to sell land in India and bring funds to U.S and gift to me. Want to find the best way to avoid/minimize tax in India and U.S. Would like to discuss if you can help. Looking fora good tax/legal accountant. Thanks.
@Shani
If they sell land in India, they would have to pay income tax on long term gains earned on this sale.
After income tax payment on gains, they can gift amount to you and there won’t be any income tax payable on this gift payment to you.
dear pankaj ji please help me
i have a land of rs. 15,00,000/- 90-91
and i am sale on accounting year 2012-13 rs 6,15,00,000/-
and i am investment in new business company but new company paid up capital rs. 75,00,00,000/- how can possible 50% equity taken by me i have only 6.15 crore
please give suggest
@Harish
You may be able to use new section 54GB to save income tax. Income tax can be saved in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.
Hello Pankaj,
Request you kindly provide help on the following:
I wish to adjust my LTCG from sale of plot against the Development
Authority house booked 2 years back.
I had booked a house from Development Authority in April 2010 ( i.e.
2Years back)
The registry/possession of this will happen sometime next year (say
Oct 2013).
I had borrowed money from my son to make the monthly payments for this
booked house, all through bank cheques.
Now, I have sold my plot in April 2012, which I had purchased in 2004.
With the plot sold, I have to repay the money borrowed for the booked
house. And I shall pay the LTCG tax on the balance.
Is this understanding correct?
Or
Do I need to pay the LTCG on all the amount?
Any advise on this will be of great help.
Regards,
Prashant Agarwal.
@Prashant
In case you don’t own more than one residential house property at the time of sale of land, you can take tax benefit u/s 54F.
In case cost of authority house is more than sale consideration of plot, then no income tax would be payable on long term gains.
Possession should be received before April 2014. If possession is not received before 31st July 2013, you would need to open capital gain scheme account and deposit sale consideration there.
Hi Pankaj,
I need your help in calculating the LTCG for the property below:
1. Flat booked in June 2001 – Rs 11,28,000 (payments made through installments)
2. Got possession in March 2003
3. Registry done in Jan 2012 – Rs 2,15,000
4. Other expenses towards Registration – Rs 5500
5. Flat sold in March 2012 – Rs 40,00,000
How much would be the capital gain and how are the registry charges included in the overall calculation?
Thanks in advance
Rohit
@Rohit
Please see LTCG and income tax computation below:
Possession Year = 2002-03, Purchase Cost = 1128000, Cost Inflation Index (CII) for possession year = 447
Registration Year = 2011-12, Registration Cost = 220500, Cost Inflation Index (CII) for Registration year = 785
Sale Year = 2011-12, Selling price = 4000000, CII for sale year = 785
Indexed Purchase/Construction Cost = 1128000 x (785/447) + 220500 x (785/785) = 2201440
Long term capital gain = 4000000 – 2201440 = 1798560
Income tax on capital gain = 1798560 x 20% = 359712
Thanks a lot Pankaj.
Hello Pankaj ji. I have inherited a plot measuring two kattha (about 1800 sq ft.) and its present value is about Rs. two lakhs. Though agricultural it falls within the municipal limits.It was bought by my great grandfather 50-60 years ago. I want to sell it now. Please advise me how to compute capital gains tax on sale of such an old inherited plot. I understand that CII chart starts from the year 1980. Thanx and regards.
@Sudhir
You need to consider purchase year as 1981-82 and consider purchase price as fair market value as in this period.
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%
Hi Pankaj,
I had bought 2 flats in 2000 totalling 8.2 lakhs (both the flats were in joint names, myself and wife). In 2011 I have sold both of them for 55.5 lakhs. After this I have invested the same with a builder (as investor 30 lakhs). He is building a complex at
Malvan and has assured us 5 flats upto 3000 sq ft.
What is the best way to reduce my capital gains liability and how?. What is the best way i can ask the builder to structure the flats to avoid capital gains.
H
@Ajinkya
As sold flats are two, you can reinvest capital gain amount into maximum two residential house properties for tax benefit u/s 54.
Long term gains from each flat would be around 20 lakh (considering each with similar cost). So if cost of new flat is more than this amount, you may save income tax fully. It would be best if new flats can be shown part of same structure.
Please note that possession for new flats should be in your name and it should be done before end of two years from flat sale.
Dear Pankaj,
Also I wanted to know if I invested in one flat at Pune say worth 45 lakhs but take a (loan of 30 lakhs+ 15 lakhs my contribution) will it be set off against my Capital gains tax liability of 40 lacs.. before the end of 2 years from my sale agreement.
Or is it that for the new flat that I take I will not be allowed to take a loan or my contribution to the the said flat has to be 40 lacs..for me to set off the capital gains.
Please advice..
@Ajinkya
As purchase cost of new flat is more than capital gains, income tax benefit would be available.
Even if loan is taken for new property, section 54 would still be applicable.
Dear Pankaj,
What if I buy 2 properties a) one flat worth Rs 27 lakhs now and b) one flat worth Rs 13 lakhs before 2 years of my sale. Will this also offset my capital gains of 40 lakhs ?
Also if both of these have a home laon component I hope its not an issue.
Please advice.
Thanks in advance and i need to tell you you are of great help to novices like me ..
@Ajinkya
As sold flats are two, you can invest into two different flats to save income tax on gains, but each would be considered separately.
But if cost of one is 27 lakh and other 13 lakh, and capital gains from each sold flat is 20 lakh; you would have to pay income tax on 7 lakh gain.
There won’t be much issue due to home loan taken on these flats.