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 deposited 20Lacs on Fixed Deposit under Capital Gain on June 2011 and now want to invest the complete amount in a residential property. Please advice what are the formalities required to withdraw the money. How the payment to be used?
@Vikas
First capital gain fixed deposit account will have to be converted into a capital gain savings account. After this is done, You can withdraw amount by filing up form C and D. Amount withdrawn can only be used to pay towards new house purchase or construction. Withdrawn amount has to be spent within sixty days and whatever is left has to be deposited back within this time.
To close this account you would need approval from assessing officer in form G.
Hi Pankaj,
Thanks for your valuable advice. Do I have to get any approval for form C and D
Regards
Vikas
Pankaj,
just to add in the previous query, can I use 60% of the amount of Capital Gain FD to support purchasing of land. Balance 40% amt I can use for construction in Nov 2011.
Regards
@Vikas
No approval is needed in case of form C and D. But any withdrawal over Rs.25,000/- will be done only in form of crossed demand draft (can be payable to builder or seller)
Yes, you can use some amount in buying land and rest for construction. Take out 60% amount first with DD payable to land seller.
If I sell 2 houses and purchase 2 house will I get LTCG benifit on both of them or either of them and what will happen after DTC
@Nilendra
If you sell two house and purchase two new houses, you can claim income tax benefit for both individually under section 54.
Even after direct tax code, this will remain as it is, as per current draft.
Dear Sir, From the sale proceeds of two apartments in a building, I expect to earn about 25 lacs as LTCG (rupees ten lacs from one apartment and another 15 lacs from the other). . I want to buy two number apartmens from thesale proceeds. Apartments are to be sold out on two different dates to two different buyers. Will I get LTCG Tax exemptions on the two new apartments, I am going to purchase. The sale is within the same assessment/financial year. Please do reply,
@A.L.Gera
You can get tax benefit under section 54, as you are buying new flats from the sale amount of old flats.
To save tax fully, new flat's cost should be more than capital gains earned from older one's.
my father sold house for 45 lacs . LTCG is 15 laCS. HOW MUCH MONE IS TO BE INVESTED IN CAPITAL GAINS ACCOUNT SCHEME - 45 LACS SALE PROCEEDS OR 15 LACS lTCG ? Also , how much period to be invested ?
thanks.
heena
@Heena
In case of sale of house, only capital gains has to be invested into capital gains scheme account. Amount can be maximum invested in this account for three years.
To save income tax fully, within two years of sale of old house, a new house has to be bought for amount more than LTCG (15 lacs), or a new house has to be constructed within three years.
If same is not done, income tax will have to be paid @ 20% on LTCG, after that only amount can be withdrawn from capital gains scheme account.
Thanks for your reply. also, where can we invest the rest of 30 lacs ? If we invest in bank , is the interest earned on it taxable ? My father has invested 42 lacs in capital gains scheme instead of 15 lacs for a period of 400 days . now what do we do in this case ?
@Heena
You can invest rest 30 lacs wherever you want. if you put it in bank, interest will be taxable as usual.
Your father can withdraw remaining extra amount from capital gain account by providing approval letter from assessing officer.
Hi Pankaj,
Can you advise if I invest the money from sale of my flat in a Capital Gain savings account, does the interest earned on this amount also be used for buying a property itself?
@Manoj
If new property is not purchased before income tax return filing last date (31st July) but you intend to do so in next 2 years, then its mandatory to invest the capital gains into capital gains scheme account. If its not done, income tax would be payable on capital gains.
Interest earned on capital gain account will be added to taxable income and taxed as per your slab rates.
Sir,
I got around 5Laks LTCG from my house sale in July2011.
I purchases new flat in 2009 October (Registration) and got possession in April 2011.
Can account the LTCG from my house sale in the in my new house?
@Shanthi
Yes, you can do same as you got possession of new house within one year before sale of old flat.
Respected Batraji. Please ponder over my question. I bought 200 sq yds semiconstructed plot in 1984.Most of the semiconstructed house remained unutilized as my husband was in service.Ater retirement I got it constructed from a builder which contained Parking on GF, Uppeer Ground Floor, First Floor and Second Floor.One complete floor was given to builder without consideration. I am occupying UGF as residence. Now I want to sell out Complete Second Floor (which contains two apartments) for a consideration and my long term capital gain would be approx. 32 lacs.Can I utilize the full amount of long term capital gain for purchase of two houses under construction in Kundly area .The approximate cost of two houses will be arround 80 lacs, The new houses i want to buy are under construction and I may get possession within three years as the builder is promising. I am still to book the houses. I have one residential unti on UGF. Am I entitled to claim LTCG for the purchase of two houses from the builder. I am an old lady and am not in a position to seek advice from other legal sourses. Please advise,
@Savitri
Under section 54, income tax benefit is available against purchase of a single property only. To save tax fully, new house property cost should be more than long term gains only (32 lacs).
In case you are selling two apartments as separate units, you may buy two residential properties in return to save tax.
Possession of new properties must be taken before end of two years from date of sale of old flats. Whole long term gains should be invested into capital gain account scheme till this period.
Batraji-
Thanks for timely reply. I already own a house in the old complex. Will I get tax benefits under such conditions.The builder of new house , which I want to purchase the two number apartments, will give me possession within three years. If possession is delayed beyond two years, will I get the tax benefit?. The builder after booking the apartment is ready to give me provisional allotment letter. Will this allotment letter can be termed as possession of new house. Please reply .Thanks in anticipation.
@Savitri Ji
Already owning a house anywhere won't be an issue in claiming tax benefit under section 54.
If possession of new houses is not taken in next two years, income tax benefit won't be applicable.
Provisional allotment letter won't be helpful, Only a registration of property in your name and possession letter will help.
Sir
I bought a site in 2003 for 29L and it lay vacant till 2011. In the meanwhile I built a house with loans from two banks. I am planning to sell the vacant plot for about 85L. The indexed cost of the site in 2011 is coming to 51L. So the Capital Gains is 34L. Can I use this money to pre-pay my existing home loans and save the capital gains tax? Or is it that the money has to be spent only on buying/constructing a new house?
@Chandra
If a new house has been bought/constructed within one year before sale or within two years (three years in case of construction) after sale of old plot, then only income tax benefit will be applicable under section 54F.
Also, to save tax fully on gains earned from plot sale, whole sale consideration amount (85L) has to be use (not only the capital gains amount - 34L). In case less amount is used, income tax benefit would be available only for proportionate amount.
Dear Mr.Pankaj,
I was given some shares from my employer a company a joint venture between 02 organisations and closly held in year 2007 @ Rs.17/- per share. Now One partner has sold its share in the co. to the another and we have transfered our share by off market transcation to a employee welfare trust which also held some equity in the organisation.
Now this trust has paid us the money and they in turn will sell this to the other equity holder who is taking control.
The shares has been sold @ Rs.60/- per share and from proceeds they have deducted the interest on issue price and the issue price also which we did not pay at the time of issue and paid us @ Rs.35/- per share and (60-17(Issue price)-Rs 8
( Interest for 4 years)
kindly guide if we need to pay any tax on this transaction and if yes how much.
Regards
Deepak jain
@Deepak
I think it will be treated as short term gains and whole income (Rs 35 x no of stocks) will be added to your taxable income and taxed as per your slab rates. This is because you never actually bought these unlisted stocks.
If you would have paid for same in 2007, then it would have been long term gains (as kept for more than three years). In that case income tax applicable would be 20% on gains with indexation benefits. Below calculation would have been used in that case:
Purchase Year = 2007-08, Purchase Cost = 17, Cost Inflation Index (CII) for purchase year = 551
Sale Year = 2011-12, Selling price = 60-8=52, CII for sale year = 785
Indexed Purchase price = 17 x (785/551) = 24
Long term capital gain = 52 - 24 = 28
Income tax on capital gain = 28 x 20% = 5.6 Rs per stock
Thaks Pankaj for your prompt guidence, since i am paying the interest on borrowed capital for buying the shares will it not tentamount to have been purchased by me in 2007.
Second, what is the difference betwwen STT paid and Not paid, does it impact the tax liability?
@Deepak
In case of capital gains, three years are counted from transfer of capital assets to your name, which did not happen in 2007.
For all Indian listed stocks (on stock market like NSE, BSE etc) and equity mutual funds, gains earned from more than one year of investment are tax free. On all these transactions STT is paid, so as a general rule, if STT has been paid on transaction, long term gains are tax free.
Dear respected Batraji
Please advise-
1. My expected amount of LTCG (on sale or residential house) as on 10-10=2011 = Rs.2730000.00
2. Intend to book residential apartment on 12-10-2011 with cost = Rs. 3570000.00
3. Pay 10 % booking amount to builder on 12-10-2011 =Rs. 357000.00
4. Pay 85% as down payment plus EDC/IDC/PLC/Car parking amount on 27-11-2011=Rs.3384500.00
5. Sign agreement and get allotment letter on 27-11-2011, specific apartment is allotted
6. Thus total amount paid by me ending 31-12-2011 will be Rs. 357000.00(booking amount)+3384500.00 (85%+other chages =Rs. 3741500.00
7. (This total amount of 3741500 is made from the amount of LTCG amount and my savings etc)
8. Thus be end of FY 2011-12(AY-2012-13) I will be paying more than the amount of LTCG amount which is 2730000.00 . I am to pay balance 5% at the time of offer of possession to builder.
My request is please clarify-
• Where to keep the amount I received from the purchaser of my old house which I receive on 10-10-2011.
• Am I required to open LTCG account with the bank on 10-10-2011 or so
• If I do not get promised possession of the new apartment under purchase within Two years what will be my liability.
@Chawla Savi
There won't be an issue if possession of house is taken before 31st July 2012. But if it is not done, as per rules, a capital gain scheme account (CGAS) needs to be opened.
To be on safe side, open an account in CGAS before 27-11-2011 and deposit deposit 27.3 lacs into this. On 27 nov, 2011, leave 5% amount in CGAS (to be paid at possession) and withdraw remaining amount as demand draft in Nov to pay towards 85% to builder.
If possession is not taken within two years of sale (by 09-10-2013), no income tax benefit would be available and income tax @ 20% would be payable on LTCG.