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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Dear Pankaj
Recently i have sold a piece of land and got involve myself in long term capital gain
i sold it in 36 lac in 2011 nov ,which i had purchased in 2003 at 3 lac so therefore i would like to invest in bond so that i can save tax so can u plz tel metill which month i have to invest in bond and how to calculate the amount which i have to invest or will i have to invest the full sale proceed..
@Sumit
As you sold a plot, you would need to invest full sale consideration in order to save income tax fully u/s 54EC.
You should invest the amount into capital gain bonds within six months of sale of plot.
Dear Pankaj,
I am staying on rent since last 2 year and my rent agreement has expried on Jun 2011.
I have not made any agreement thereafter.
Now, I have applied for Rs 1400000 /- home loan and my first PreEMI cheque of Rs 6800 /- will be deducted on 30th Dec 2011. and first full PreEMI of Rs 12000 will be deducted on 10th Jan 2012. The home for which i have taken this loan is still under construction and probabily i will get the possession before end of Jan 2012.
Can you pleae suggest how i can use this data for saving income tax for FY 2011-12.
@Amit
Your query has been already answered on http://www.socialfinance.in/questions/2032/income-tax-saving-on-home-loan
hi,
We own a land property, its brought in 2003 on my moms name. Now we want to sell it and from that money willing to buy a flat on my name. How shall we do it so as to avoid LTCG tax ? According to all other calculations you shown i did ous as,
Purchase Year = 2003, Purchase Cost = 300000, Cost Inflation Index (CII) for purchase year = 463
Sale Year = 2011-12, Selling price = 2200000, CII for sale year = 785
Indexed Purchase price = 300000 x (785/463) = 508640
Long term capital gain = 2200000 – 508640 = 1691360
Income tax on capital gain = 1691360 x 20% = 338272
(check if i am wrong anywhere)
After selling, with this selling price & salary bank loan from bank under my name, willing to but a flat...
-my queries are: can my mom gift me this money/plot ?
-can we sell this and purchase a new flat on my name instead of mothers name?
- if not can we buy new flat under both names mine & mothers name? And still get loan from bank?
please suggest !
@Pavan
If your mom sells plot, long term capital gain would arise, as you have computed. If she wants to save income tax on same, new residential property needs to be purchased on her name itself.
If she gifts you money, she will have to do it after paying income tax on same.
If you want to buy new house on your name, let your mom first transfer plot to your name through registered gift deed, then you sell it. This way, capital gains would arise to you and to save tax on same, you can buy a new house u/s 54F.
Other option is buying new house in joint name (you and your mother), but in this case price of your mom's share in new house should be more than selling price of plot, to save tax fully.
Thanks Pankaj,
i waited for your reply through out the day, but i guess it provided me the exact solution !!
So if my mom transfers this plot to me through registered gift deed, how much charges it will account us?
Secondly, if we sell it and buy new flat on combined basis (moms share being more), will i get the remaining amount as loan from bank based on my salary ?
Thanks in advance,
Pavan
@Pavan
Registered gift deed of transfer may cost 1-5% depending on state rules. Please confirm same from your district courts.
If you are a joint owner in a property, you should be able to get loan upto 85% of value of your share in property.
I searched for charges in Maharashtra for registered deed but could `t find any?
can you tell me how much charges i need to pay ?
In second case, where we buy new flat (new/resale), will there any constraints from bank for loans? builder/owner ?
Thanks,
Pavan
@Pavan
I have not much idea about Maharashtra duty charges. Can you please confirm same from any property dealer/agent or a property lawyer.
There should not be constraints on where you should buy new flat from. Bank should be able to pay max 85% of cost of new flat (either from builder or resale).
Dear Mr.Batra,
Thanks for your excellent article. Can you please help me in computing
the LTCG?
My mother bought a plot of land in 2005 for 81500. The Ownership of this plot was transferred to my name in September 2011. I sold this plot for 15,00,000 in Dec 2011. Can you please should I pay LTCG or STCG?
If LTCG can you please tell me how I can avoid it, if I am not going to buy residential property now?
Thank you
@Vasan
It will be considered long term gain and actual date of purchase by your mother would be considered for computation of LTCG.
Below is the computation:
Purchase Year = 2005-06, Purchase Cost = 81500, Cost Inflation Index (CII) for purchase year = 497
Sale Year = 2011-12, Selling price = 1500000, CII for sale year = 785
Indexed Purchase price = 81500 x (785/497) = 128727
Long term capital gain = 1500000 - 128727 = 1371273
Income tax on capital gain = 1371273 x 20% = 274254.6
If you want to save income tax on this gain and don't want to buy a residential property, you should invest whole sale consideration amount (15 lakh) into capital gain bonds u/s 54EC within six months of land sale.
I purchased a residential plot in joint name with my wife for Rs.5.00 lakhs in August 2003 and sold the same in November 2011. Kindly advice the LTCG in the tranction.Kindly also advise wheather date of Registry is the date of sale or thedates of receipt of advance payments
@Ashok
You can compute LTCG by using following method:
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%
Date of registry is considered date of transfer and would be used for LTCG computation.
Hello Mr. Batra,
If I were to buy a large piece of land for 50 lakhs, construct 2 houses on the plot with a total construction cost of 50 lakhs and 1.5 years from the initial land registration date, sell off the houses individually to third parties for 1 crore each (the houses will not be registered in my name) - I will have a net profit / capital gain of 1 crore overall. Is there any way to mitigate the capital gains? Will this 1 crore of profit even be considered as a capital gain or will it be treated as an income ? Could you please advise.
Thanks
@Anup
It will be treated as short term gain as it has occurred before completion of three years of ownership.
There is no way to save income tax on this short term capital gain (STCG) and whole gain would be added to your taxable income.
If you have some short term losses, then it can be set off against that.
First of all thankyou for your great article and great support for all the users.
I have one query.
If I have "constructed" the house property within one year "before" the transfer took place will I be eligible for claiming deduction under 54F?
@Anand
As per my knowledge, in case of construction of house, one year before clause is not available and new house should be constructed within three years after sale.
Hello Mr Batra
My mother has sold a land for 1500000 which was purchesed in 1988.
Now she whats to buy a flat on my name. Will she be eligible for tax benefit as the money she got will be invested in residential property on her son's name, or she will get tax benefit only if she purchases flat only on her own name.
Thanks!
@Prabhat
Your mother will only get tax benefit if she buys residential house property in her name (in single or joint ownership).
In case its in joint ownership, to save income tax fully, her share in new property must be more than sale consideration amount of sold land.
hi,
my father has a plot which he want to sell and now he want to purchase a new house or construct a new house. i wanted to know that whether he will be get any benefit of sec54f if he already have 2 residential house in his own name or if he transfer one house in his wife name thn can it be possible to claim exemption u/s 54F.
@Swati
If your father already own two or more residential properties at the time of buying/constructing new one, tax benefit u/s 54F won't be allowed. But if before doing it, if he transfers property to anybody else's name and total owned properties then becomes less than two, section would be applicable.
thnx Pankaj,
one more question, if my father purchase a land and after that construct the house within 3 yr thn it will be permissible for exemption u/s 54F if yes thn will land cost be add into construction cost or not?
@Swati
In case house is constructed on land within three years from sale, exemption can be taken u/s 54F.
Land cost will also be added to new property cost for tax benefit.