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.
Hi Pankaj and Team,
I bought a villa in a gated community, the land was registered in my name in Dec 10, then the builder constructed the house and i have the possession certificate of Mar 13.
The total cost (land/construction/ST/registration) came down to Rs 26,40,000/- I also have a loan of Rs 10,00,000 on the same from Mar 12.
Now I am selling the house for Rs 30,50,000 /- in Jun 14
How do I calculate capital gain tax on this, will it fall under long term or short term.
@Vicky
As land was purchased before three years of sale, it can be assumed as long term capital gain case.
Below is a sample gain computation example. CII for 2014-15 has not been declared yet, its been assumed as 1000 below.
Purchase Year = 2010-11, Purchase Cost = 1500000, Cost Inflation Index (CII) for purchase year = 711
Construction Year = 2012-13, Construction Cost = 1140000, Cost Inflation Index (CII) for Construction year = 852
Sale Year = 2014-15, Selling price = 2050000, CII for sale year = 1000
Indexed Purchase/Construction Cost = 1500000 x (1000/711) + 1140000 x (1000/852) = 3447733
Long term capital gain = 2050000 – 3447733 = -1397733
In above case, its a loss not a gain. If as per actual computation it comes as gain, 20% income tax would be payable on this gain.
Hi Pankaj, thanks a lot, a couple of questions
1st. even though I got the possession in Mar 2013, this will still be seen as long term capital gain as the land was registered in Dec 2010
2nd. in order to calculate the exact gain/loss, i should break up the construction and land cost and do the math as shown above.
3rd. the land cost will be based on the registered amount or the actual amount i paid to the builder for which i have a receipt
regards
vicky
@Vicky
1. There is not much clarity on this as per tax laws. As you bought land in 2010-11, you had capital asset and already incurred cost, so it should be long term gain.
2. Yes, you should separate cost financial year wise and then compute indexed cost in sale year to compute gains.
3. Land cost should be cost mentioned on sale deed. Payment to builder should also be same (unless there is some cash element involved)
Hi I sell a plot for 56 lakhs in march 2014 and I havepurcahse it for 36 lakhs a sper the cost of index valuation.I am getting a LTCG of 20 lakhs & in march I purchase a plot for 3.5 laks and i have spent 10 lakhs in construction till date.
How much LTCG tax i have to pay
Regards
@Aj
Invested Amount = 13.5L
Non-Exempted capital gains = 20L x (1-13.5L/56L) = 15.2L
Income tax on non-exempted capital gains = 15.2L x 20% = 3L
Hi,
I bought a flat that in 2001 for price of 6,31,890 (+ stamp duty = 16700 + 30,000 as other expenses asked by the builder at possession). I sold this flat in June 2013 for 55 Lakhs. I purchased another under construction flat for 1.23 Cr by making initial down payment of 20% in Feb 2013 and registered the same in July 2014. The payments are to be made as per the construction linked plan with possession being available in June 2017. Some of the money from the proceeds of the old house have been utilized for payment of new house and remaining amount is deposited in capital gains account.
Will I have to pay any capital gains tax
@ST
As per section 54, in order to claim tax benefit, possession of new house property should be taken within three years of sale. If you get possession in June 2017, that is 4 years from sale, you would be denied tax benefit.
In that case, you will have to pay taxes on capital gain.
I sold resedential house for Rs. 82 lacs in aug.2013 & immediately purchased a residential plot worth Rs. 1.15 cr in sep.,2013. I had filed I T Return for the F Y 2013-14 mentioning above transactions. Now I intend to sell residential plot which will not earn any Capital gain& to purchase Built up flat worth Rs. 1 cr.I would be submitting Revised I T return for the F Y 2013-14 much before 30th march,2015.I am of the view that by doing this, I shall be able to retain Availed LTCG on the selling of my residential house for Rs. 82 lacs. Please clarify whether my version is correct or not ? , so that before doing any such transaction, I may take right step to avoid financial loss.
@P C Jain
Your version is not correct.
As per section 54, if you have not got possession of new house property before last date of return filing (that was on 31st July 2014), you should have opened a capital gain account in order to claim tax benefit u/s 54.
In case you have opened capital gains account, you would be safe and can do what you are saying. Else, tax benefit may be denied by assessing officer.
Hi Pankaj ji,
I am thankful for your valuable / quick response.My further query is as under:
1) That as already mentioned earlier , I had purchased residential plot worth Rs. 1.15 cr & had been shown in my IT return for FY 2013-14 filed before 31st July,2014. So Exemption of LTCG on sale of my house for Rs. 82 lacs will be admissible to me as I shall also complete construction of house on it within 2 years as per admissible Rules. Please confirm my view.
2) To support /my earlier view that If again I sell my newly purchased plot on which there will not be any capital gain and I purchase flat & file Revised IT Return ( F. Y 2013-14 ) before 30th March,2015, concession of availed benefit of LTCG on selling my house for Rs 82 lacs should not be denied as justified/ explained under:
i) I have checked on Inter nett that one person neither purchased nor opened capital gain account before last date of filing return but subsequently purchased house. I T authorities did not allow him tax benefit of LTCG. He filed case in High court & he was allowed the benefit of tax exemption on the plea that there is only non compliance of instructions of opening capital gain account but since capital gain amount stands utilised within time limit as per rules.
ii) In my case I have utilised the amount by purchasing residential plot & I only want to change property from plot to flat, so my case is much more justified except there is not clear clarification/ instructions on the matter, which can be referred in such like case earlier decided by IT authorities/ court as the same becomes precedent/rule for future cases.
iii) In view of the above, I request your good-self to help me by quoting some similar case earlier decided by IT authorities/ Learned Court.
I shall be very much thankful for your quick response/ efforts.
With Thanks & Regards,
Er. P C Jain,
Dy. Chief Engineer ( Retd. )
Mob. No. 09999917735
@P C Jain
1. Residential plot only is not enough for completing tax deduction u/s 54. Construction of a house should be done on it. If construction does not get completed before last date of return filing, its mandatory to open a capital gain account as per rules.
2. As capital gain account is not opened before 31st july, no possession is taken or house construction is completed, assessing officer may deny tax benefit. If they do so, you can go ahead and fight case.
Hi Pankaj ji, I am again thankful for your very prompt reply.My reply to your answer is as under:
i) I had invested more than sale proceed of Rs. 82 lacs ( LTCG of Rs. 70 lace after C. I) in purchasing residential plot.
so there is no question of depositing any amount in capital gain a/c. except completion / construction of house before 3 years of sale transaction, which I shall do. Therefore I am , as per I.T rules, is of the view that I am entitled for Tax benefit as I am complying all the conditions.
In view of the above , kindly confirm whether tax benefit is admissible to me or not , if Again I sale my purchased plot & purchase a flat in lieu thereof ( without any capital gain )and submit Revised return for the FY 2013-14 before 30th March,2015.
I shall be grateful for your prompt valuable clarification.
With Thanks & Regards.
Er. P C Jain
@P C Jain
In case you build house on the plot, you can still fight on this case with assessing officer saying that you already spent more than gains before return filing. Although law does not even permit this without opening a capital gain account (in case construction is not complete).
If you sell your plot against which you have taken deduction without opening capital gain account, your case would further weaken.
Hi Pankaj ji, I am really thankful for sparing your valuable time & very quick response , which is appreciable.Again to your reply, I may mention that opening of capital gain a/c is must , if you don’t invest LTCG before 31st july i:e last date of filing I T Return of the year in which LTCG occured. In my instant case, as earlier mentioned, I sold my house in Aug.2013 & purchased residential plot in Sep, 2013 and thus invested more than capital gain immediately. Thus it appears that no question of fighting with assessing officer will arise as now I am only suppose to complete construction before 3 years of sale proceeds of my house.Question of Opening of capital gain amount would have arised, if I had not purchased plot before 31st july,2014 . Capital gain a/c was only required to be opened for an amount difference of LTCG & amount invested in puurchase of plot & where as I invested more than LTCG before the due date of filing I T Return. I am not at all worried about eligibility of exemption of LTCG in above case except for change of new residential purchased plot to be sold & then to purchase flat & to retain LTCG already availed by filing Revised Return upto 30th March,2015. Please again check / confirm my above version & help for my proposed proposal by supplying any precedent in such like case.
With Thanks in advance & Regards.
ER P C Jain
@P C Jain
As per rules, opening a capital gain account is must if possession/construction is not complete before last date of return filing. Assessing officer may not agree to what is your understanding of the rule.
I would suggest to get help from a CA/lawyer/tax expert in property matters.
Hi Pankaj ji, Can you supply any judgement/instructions according to which opening of Capital gain a/c is must even if you have invested more than LTCG in purchasing plot & construction of house on which is required within 3 years of sale transaction date,before 31st July i:e last date of filing I. T Return.However I agree that benefit of LTCG will be forefeited, if construction of house is not completed within time limit. I have consulted no. of senior Tax advisors/ C. A’s. No one have suggested to open Capital Gain a/c & rather they say conditions for getting benefit of LTCG meets in my case. Please re-check.With Thanks
Hi, Mr. Pankaj
My Society (Building) was goes in Re-Development & builder given Corpus Fund to Every Members Individually of Rs. 10,00,750/- each in Oct-2013. i want to know that this amount of Corpus Fund is Taxable for me in my Individual Return.
@Juned
I don’t think that it should be taxable as its not the income.
i purchased a plot in 2005 for rs 1 lac sold it for rs 8 lac in 2014 and purchased another plot for rs 9 lac . how do i save L .T C. G. TAX
@S.L.Agarwal
In case you construct a house on new plot within next three years, then you can avail tax benefit u/s 54F.
Respected Batraji, I have not received reply from you regarding my question /query asked on 10th Aug, 2014 at 7:58 AM. Please do reply particularly & also some precedents as earlier asked ,so that after selling my plot & purchasing Flat before 30th March,2014., I may be able to avail/retain LTCG. Your valuable advice & sincere efforts can help me for carrying out the transaction otherwise I will have to construct house on the purchased plot, which will be tiresome for me at my this age of 68 years. With Thanks in advance & Regards . P C Jain
@P C Jain
It all depends on whether you have already availed tax benefit u/s 54/54F.
In case in your return of FY 2013-14, you have shown sale and claimed tax benefit against new purchase of plot, you won’t be able to sell it now and have to mandatorily construct a house in three years from sale. If not doing it, assessing officer may deny tax benefit.
I agree that capital gain scheme account issue can be sorted out with assessing officer as you have already invested sale consideration into a plot, but if you further sell this plot, tax benefit may be denied.
Respected Batraji, Thanks for your quick reply.However I am still sure that if I sale this plot & immediately Purchase Flat & submit revised return showing transactions before 30th March,2015, I must be allowed to retain LTCG as it will be only change of property without any short Term capital Gain. I am sure such like case must have happened in the past & if you can find any such like case & decision thereon , it will help me a lot. Please spare your valuable time in tracing similar case & help.
Dear Pankaj,
First of all, a huge thanks for responding to endless queries from common people like me who do not understand much of income tax laws.
I have taken your assistance earlier as well from the medium of this site and the information provided has been really helpful.
My query today is as following:
My mother has the following properties in her name:
1. Two Residential Plots (Plots are in different states)
2. 1 Residential Flat (Joint name of my father as well)
3. 1 commercial shop
We have to sell one of the residential plots now which has been our property for more than three years so comes under Long Term Capital Gain.
As per my understanding, section 54F is applicable here as the property is a residential plot and not a house. But as section 54F is not applicable in case person owns more than one residential house property at the time of sale of plot, so I would like to check if section 54F is applicable or not.
In addition, my mother has to transfer the 2nd residential plot under my name and the residential flat to my father’s name completely. Will doing this before the sale of the 1st residential plot be of any benefit?
Thanks in advance
Regards
Rohit
@Rohit
Section 54F would apply as she only owns one residential house property in her name at this point. Residential plot won’t be considered as house property, so she only has 1 flat in joint ownership with your father.
Transferring flat completely on father’s name would definitely be beneficial as it would help in sale of other plot (in case she wants in future)
Hi Pankaj, thanks for your response.
Two further queries:
1. Where should the money from the property sale be kept till the time the new property is bought? Can this be kept in standard personal bank accounts or a specific bank account is required?
2. What is the procedure to transfer a property (plot, house) within the family? Will name change on the registry incur stamp duty or registry charges again? And should this be shown as a gift aid when filing tax as there is no monetary transactions involved.
Thanks in advance
Rohit
@Rohit
1. If possession of new property is taken before last date of return filing (31st July) for the financial year in which sale happened, you can keep the amount into any account. If not, you will have to deposit the unused amount into a capital gain scheme account before 31st July.
2. Transferring property within family would happen with a gift deed. Yes, stamp duty and registration charges applies to this and varies from state to state. FYI, Haryana has removed stamp duty charges for such deed this year. This should be shown in ITR as gift from relative with no tax liability on it.
in case of purchase and sale of private land, land value shown in ragistry is . about 50% of cirlle value although stamps are fixed as per circle value . how to calculate LTCG TAX . and if bonds are purchsed to save LTCG TAX HOW TO CALCULATE THE AMOUNT .as amount shown in rgistry is about 50% of circle value.
@S.L.Agarwal
LTCG would be computed on circle rate or actual sale price, whichever is higher.
i purchased a plot in 2005 for rs 1 lac,( circle value 2.5 lacs ) .i sold it in 2014 for rs 8 lacs (circle value 16 lacs ) what is my LTCG TAX . I PURCHASED A PLOT FOR RS 9 LACS( circle vaue about 17 lacs . what is my LTCG TAX . AND IF I CONSTRACT THE BOUNDRY FROM ADDITIONAL AMOUNT WILL I SAVE LTCG TAX.
@S.L.Agarwal
See long term gains computation below:
Purchase Year = 2005-06, Purchase Cost = 250000, Cost Inflation Index (CII) for purchase year = 497
Sale Year = 2013-14, Selling price = 1600000, CII for sale year = 939
Indexed Purchase price = 250000 x (939/497) = 472334
Long term capital gain = 1600000 – 472334 = 1127666
Income tax on capital gain = 1127666 x 20% = 225533.2
In order to save income tax fully on gains, you will have to spend whole sale consideration (16 lacs) into new house property u/s 54F.
Just creating boundary won’t help in tax saving. A house needs to be constructed.
WILL INCOME TAX OFFICER VISIT THE SITE TO SEE IF HOUSE IS COMPLEAT
@S.L.Agarwal
They can ask for completion/occupation certificate for house.
They may also visit in case they have some doubts.
i received rs 16 lac for sale of plot and spent rs 17 lac on purchase of new plot as per circle rate . i have spent more than what i received .now what is the minimum construction which i must do to save LTCG TAX . A HOUSE IS AFTER ALL A HOUSE WHETHER IT IS A BANGLOW OR A SINGLE ROOM
@S.L.Agarwal
You can also construct a single room set and get occupation/completion certificate.
MY HIGHEST GTATITUDE FOR REPLYING EVERY QUERY . KINDLY TELL FROM WHOM THE CERTIFICATE IS TO BE TAKEN
@S.L.Agarwal
local municipal corporation should provide you such certificate.
Many many thanks Mr. BATRA for your expert advice . now i understand that i will have to construct a house with in 3 years from purchase of plot to save LTCG TAX . if i get a better plot in future can i construct house on it after selling the plot which i just purchsed and cost of NEW plot is Rs17 lac or more .
@S.L.Agarwal
You should open capital gain scheme account if construction is not completed before last date of return filing for year in which old property was sold.
Unless you claimed exemption for a property, you can sell and buy any other property.
I SURE WANT TAX EXEMPTION .my query was if i get a better plot in future say after a year and sell this plot for 19 lacs and purchase another plot say for rs 20 lacs and construct house with in remaining two years will i save L.T.C.G. TAX.? MY son is also having a plot which he purchased before 9 years . if he sells his plot say for rs 15 lacs and i use his rs 15 lacs in construction of my house will he also save L.T.C.G.TAX AS ALL AMOUNT RECEIVED FROM SALE OF BOTH PLOTS HAS BEEN USED IN PURCHASE OF LAND AND CONSTRUTION OF NEW HOUSE
@S.L.Agarwal
If you sell the plot against which capital gain exemption is taken, assessing officer may deny tax benefit.
Regarding second query, yes, you and your son can construct combined house from capital gain amounts and save tax.
Hi Pankaj,
My mother had purchased a residential property (old) in 2008 for 8,00,000. Me and my mother jointly purchased another residential property (new) for 98,00,000 in Jan 2014. We then sold the old property for 28,00,000 in June.
We then used the amount we received to repay the loan we had taken to buy the new property.
Is my mother liable for LTCG tax on the sale of the old property or can we get exemption?
Can you please suggest.
@YR Jangid
As your mother bought a new residential house property within one year before sale of old property with an amount more than capital gains, she does not need to pay any income tax on capital gains. This would be under section 54.
capital gain calculed on both plots are to be used on purchase of new plot and construting house on it or whole amount received from sale of both plots is to be used
@S.L.Agarwal
If plot is kept for less than 3 years, it would be short term gain and there is no tax exemption available for such gain.
both plots were purchased in 2005 .my query was whether whole amount received by selling of both plots is to be used in purchase of new plot and constrution of house or only LTCG amount is to be used
@S.L.Agarwal
Yes, sale consideration from both plots can be used to construct a single house and still tax benefit can be taken u/s 54F.
Sir, I have purchase residential plot of Rs.13,50,000/- on April 2006, and sold it for Rs.47,00,000/- in July 2014. I have deposited the Rs. 47 lakhs in my Personal saving account.
– What will be time limit to open LTCG bank account?
– I would like to by agricultural land, can I invest the whole amount or part of that amount?
– How can I save tax?
Thanks,
Pushpendra
@Pushpendra
Your query already answered here: http://www.socialfinance.in/questions/5184/purchase-agriculture-land-on-sale-of-residential-plot
suppose i utilise the whole amount received from selling of both plots i.e. 32 lacs to construct a house with in 3 years . can i sell this house after 3 years i.e. just after compleation . what will be my tax liability if i sell this house say for rs 45 lacs
@S.L.Agarwal
If you sell your house within three years after completion, tax benefits u/s 54F would be taken back.
Dear Pankaj jI, Ibought an under construction flat in Nov 2006 In Rs. 38 lakhs. It was completed in May 2010 I got it registered In May 2010 itself. In the registry the ‘sale consideration’ value is mentioned as 38 lakhs but govt circle rate value mentioned is 56 lakhs. The stamp duty paid by me was on the circle rate value (56lakhs). Now I am planning to sell this property in near future. Could you please let me know if the long term capital gain will be calculated on 38 lakhs or 56lakhs? Regards,Sameer
@Sameer
Purchase cost would be considered as 56 lakhs.