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 sold a residential property (as a sole owner) and reinvested all capital gain in a new house with joint ownership with my wife (50:50). My question is: will i need to pay any tax on capital gain due to joint ownership of the new house?
Please note that all the capital is financed by me from capital gain of the old house.
Please help.
@Jayesh
There won't be any issue with joint ownership of new property. Only point you need to keep in mind that, value of your share in property must be more than capital gains from old property, to save tax fully.
Dear sir me and my father have a flat in joint name purchased for 19 lakh in the year 2007. and sold it on oct 2011 i. e. after three years.
1. What would be the Long term capital gain ?
2. How much me and my father should invest in the capital gains bond?
3. How much income tax. me and my father should pay on the long term capital gains.
4. When the tax should be paid and the maximum amount should be invested in the capital gain bond to avail the exemption?
5. Any ways to save the income tax?
Thanks sir
Read more: http://www.pankajbatra.com/india/how-to-save-capital-gains-tax-ltcg-when-selling-land-plot/#ixzz1asfte4cQ
@Gitanjali
1. Please see below computation for LTCG. Substitute X with selling price.
Purchase Year = 2007-08, Purchase Cost = 1900000, Cost Inflation Index (CII) for purchase year = 551
Sale Year = 2011-12, Selling price = X, CII for sale year = 785
Indexed Purchase price = 1900000 x (785/551) = 2706897
Long term capital gain = X - 2706897 = L
2. To save tax fully, both you and your father should invest atleast L/2 into capital gain bonds. Max investment of 50 lacs per person can be done in a financial year in such bonds. This investment must be done within six months of sale.
3. If investment into capital gain bonds or into a new property is not done, You and your father would have to pay 20% income tax on L/2 each.
4. Income tax should be paid by March 2012.
5. Income tax can be saved by investing into capital gain bonds (u/s 54EC) or into a residential house property (u/s 54).
Dear sir which date should be considered for computing three years period
1. Date of agreement with builder
2.Date of application for completion certificate by builder to corporation
3.Date of completion certificate
4.Date of possession
5.Date of sale deed
@Gitanjali
Ideally Date of possession needs to be taken. But if due to some circumstances, you don't have possession letter, you can use date of sale deed.
Dear sir can the date possession be
1. on the date of application for the completion certificate?
2. or Date prior to the completion certificate
@Gitanjali
Date of completion on Completion certificate should be before possession date.
Dear Sir,
My father was having a residendtial flat purchased in the year 1989 for 2.75 lac which we sold in July 2011 for 14 lacs. He has purchased another flat and invested 10 lacs from 14 lacs for purchase of new property. the remaining amnt of 4 lacs he wants to use for his personal use. Will there be long term capital gain tax on the remaining 4 lacs if he uses it for personal use? If yes how much it will be? Please guide.
@Yallesh
This query has already been answered on http://www.socialfinance.in/questions/1919/capital-gain-tax
Hi Pankaj
I bought a flat in 2001 for 11 Lakhs and planning to see it now for 30 lakhs to my cousin. Meanhwile I am constructing a house and the cost of 50 Lakhs out of which I have taken 30L loan. From the sale proceeds, I am planning to repay 15 Lakhs and still have the 15 L loan outstanding. Can you let me know how best can I avoid the tax? I am open for long term Infra FD also.
And thanks Pankaj for serving thousands of people online! Please keep up the good work.
Thanks Ganesh, Anitha
@Ganesh
Your capital gains come out around 9.75 lakhs.
Purchase Year = 2001-02, Purchase Cost = 1100000, Cost Inflation Index (CII) for purchase year = 426
Sale Year = 2011-12, Selling price = 3000000, CII for sale year = 785
Indexed Purchase price = 1100000 x (785/426) = 2026995
Long term capital gain = 3000000 - 2026995 = 973005
In order to avoid income tax on this long term gains, you will have to spend atleast 9.73 lakhs on new house construction or new house purchase.
As you are already constructing a house for cost much more than this gains, there won't be any income tax liability.
Dear Mr. Pankaj Batra, I have a small query and hope to get answer from you. My Mother In Law owns a plot (land). As my father in law is suffering from kidney ailment and requires regular dialysis, she is planning to sell the plot and keep the proceeds in Bank Deposit. The Interest earned on the deposit will be used for medical expenses. My question is will Capital Gains tax attract this transaction? please advice. Your immediate reply will help us in taking decision in the matter.
@Kiran
Capital gain would be applicable in any sale of such asset like plot, house, gold etc. Seller would be liable to pay income tax on the gains.
Long term gains (plot kept for more than three years) and income tax would be computed as per below calculations.
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%
I have a plot of land to be sold for 60 lakhs. I would like to keep this money in banks . can you please highlight how we can arrange to have the bank account and what will be income tax to be paid ?
@Dr. Shanthakumar
Please compute capital gains and income tax from following formula:
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%
You can save this income tax fully, if you buy another residential house property for amount more than 60 lakhs (u/s 54F) or invest into capital gain bonds (u/s 54EC).
thanks mr.pankaj. since we are old people I would like to keep all this money in bank then how the interest and income tax calculations gets in.
Dr.M.Shanthakumar
@Dr Shanthakumar
After paying income tax on gains, you are free to keep money into your bank account.
Interest on bank deposit would be taxable, would be added to your taxable income and taxed as per normal tax slab rates.
i sold a house of Rs. 31.5 Lac on nov. 2011, this house is purchased by mr Dada G. and after taht this house owner is my father , and after my father 31.03.1997 automatically house owner is me. i have no purchase value , please guide me regarding capital gain & tax
@Abhi
Its not possible to compute long term gains without purchase cost (which was paid by your grandfather).
If the house was purchased before 1981 by your grandfather, you can consider a fair market value as in April, 1981 as purchase cost.
Once you have that, you may compute income tax and long term gains by using following formulas:
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%
Thank you for clearing my doubt. Regards, Kiran
can a exemption of 54 is applicable on purchase of two different properties situated at two different area out of capital gain
@Sadique
Benefit for section 54 can only be taken against a purchase of single residential house property only.
Dear Mr.Pankaj,
My age is 55 and I am retiring soon.
I bought a site in Chennai in 1992 for Rs.30000. I sold the site for Rs 45 Lakhs in Nov 2011.
I already have a house. I would like to purchase/construct another house in my name using the above amount. Can I do that without paying tax? If Yes,
a) what is the duration in which I can complete the construction/ or purchase from a builder.
OR
Can I purchase a site and construct in the same without paying tax.
OR
Can I construct the house in the site already existing in my wife's name, and also avoid tax.
What is the alternative method of investing this amount without paying tax.
I came to know that we can invest the amount for a 3-YEAR period to avoid tax. but, should I pay tax at the end of the 3-YEAR term. Please advice.
Thank you
Rasheed
@Rasheed
You can purchase a new house or construct new one without paying income tax on earlier property sale u/s 54F (assuming earlier site was not a residential house property, if it was then section 54 will apply instead of 54F).
1. If you get house constructed yourself, it should be completed within three years of sale. If you buy from builder/resale, possession should be taken within two years from sale.
2. You can purchase land and get house constructed on same. Three years time-frame would be applicable.
3. You won't be able to claim tax benefit, if land is not in your name in case of construction.
Other method to save tax is to invest into 3 years capital gain bonds, u/s 54EC. This has to be done within six months of sale. At the end of 3 years, interest earned from investment would be taxable like any other income like bank interest.
Dear Mr. Pankaj.
Thanks for the clarification.
with regards
G A RASHEED
Dear Pankaj,
You have posted very useful information on this site. Thanks for that.
I have a residential house under my fathers name which he has sold for 45 lacs this year with the full agreement getting completed in Mar 2012. The house was build in the year 1980. I have got two questions related to this and please excuse if this has been posted here and have totally missed it but would really appreciate if my queries can be answered -
1. Can I partially invest in buying a land and partially in buying a residential flat and save all the tax ?
2. How much tax will be liable on me and by what timeframe do I have if I have to pay tax.
Warm Regards,
Saurabh
@Saurabh
1. You need to compute long term gains on house being sold. In order to save tax on that long term gain, only single residential house property has to be bought or constructed u/s 54. Or investment in capital gain bonds can be done u/s 54EC.
2. Please see LTCG computation formula below:
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%