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 Sir, I want to claim tax exemption on capital gains from sale of land in Sept. 11 through purchase of house in Jan.,12 . Is the calim applicable even when new asset is financed through loan or I need to repay the loan from the proceeds of sold land to claim exemption.
Also let me know how to claim exemption on record(through I-T return filing ..? or what)
@Anshuman
You can claim tax benefit u/s 54F even if new asset is financed through loan.
There is no as such requirement for repay home loan from sale proceeds.
Exemption can only be claimed while filing income tax return.
Thanks pankaj for the reply.
In our case, buyer had split total sale value into two equal parts and paid to wife and husband as the property is in joint names. For the purpose of investment into 54 ec bonds, can we make single application clubbing both our long term capital gains. Are there any disadvantages of doing this way?
@Krish
Investment in capital gain bonds 54EC cannot be done in joint names. Single PAN number has to be provided for investment.
am a senior citizen, aged 63 yrs, i have a minimum income of rs 50000 per annum from A.Y 1994-1995 SO i am not submitted any income tax return from 1995-1996 and having a piece of land which is for residential house purpose but it is still empty, i sale this on jan 2012worth r.s. Ten lakh the cost of acquisition is r.s. 7500 in 14/12/1984, please tell me what is LTCG on this while it is empty land, and if i invest rs 850000 in 54ec bond then it is compulsary to submit income tax return ? and what is my tax liabilities? as per your ans from which year i have to submit my it return? if i unable to submit it, as some income tax practitioner advice then what to do? and how? from which previous year i have to submit the returm
@Biswajit
You would need to file return only for this year when you earned capital gains.
Hi pankaj, I have one query, I sold house in july 2011 which was bought on 2003, according to long term capital gain tax liability is of 17 lacs and tax is 3.4 lacs, I want to pay tax so whats the last date so there is no penalty.thank you.
@Dr. Pravin
You would need to pay taxes before 31st March, 2012.
Hi Pankaj
I had purchased an flat in Bangalore in Feb 2007 for 42L and I had taken 35L home loan. But the property was registered only for 19L at the time of purchase. I have also spent 3-4L on interiors and woodwork (for which I have not retained any bills ).
Now, I am planning to sell this flat for 58L and clear my home loan in full which is 32L (including closure charges). Please let me know how much property gain tax I need to pay (if any).
Also note, I have not taken any tax gain during these 5 years on the home loan, as I am out of country since last 5 years.
Thanks,
Suneesh
@Suneesh
Below is the computation for long term gains and income tax:
Purchase Year = 2006-07, Purchase Cost = 1900000, Cost Inflation Index (CII) for purchase year = 519
Sale Year = 2011-12, Selling price = 5800000, CII for sale year = 785
Indexed Purchase price = 1900000 x (785/519) = 2873796
Long term capital gain = 5800000 - 2873796 = 2926204
Income tax on capital gain = 2926204 x 20% = 585240.8
Purchase cost would only be taken as registered deed value and interiors/woodwork cost cannot be added to flat cost. However stamp duty/registration cost can be added to it.
There is no significance of home loan in this calculation.
Thanks, for quick replay. Now can you also let me know if I need to pay this tax in this year itself? As i am planning to get some other property in 2years time.
@Suneesh
You don't have to pay income tax immediately if you are planning to buy another residential house property.
You would need to invest gain amount into capital gain scheme account before 31st July, 2012 if possession of new purchased residential house property is not taken by that time.
This would provide you another two year time to get possession of new property or three years in case of construction of house.
Hi Iam Mahek Kakkar. I have puchased flat for 1586000 in 2010. I got 100% loan on said property. Now I am selling this flat for 23 lacks and I am investing this money in other property. pls advise me how much tax I need to pay.
@Mahak
As you are selling flat before end of three years of ownership, this would be short term capital gains.
There is no tax saving method available for short term gains. Whole gain (7.14 lakh) would be added to your taxable income and taxed as per your slab rates.
Whether tax benfit u/s 54F is available to a individual if he sale a open plot and from the sale consideration he purchases two residential house property at two different location and he do not own any house property at the the time of transfer.
@Anand
Tax benefit u/s 54F is available only against a single residential house property. If you buy more than one property, you can only claim against one of them.
sir, if i invest rs 850000 in 54ec bond then it is and balance in f.ds then what is my tax liabilities?
Read more: http://www.pankajbatra.com/india/how-to-save-capital-gains-tax-ltcg-when-selling-land-plot/#ixzz1mcnpHne1
@Biswajit
Purchase Year = 1994-95, Purchase Cost = 7500, Cost Inflation Index (CII) for purchase year = 259
Sale Year = 2011-12, Selling price = 1000000, CII for sale year = 785
Indexed Purchase price = 7500 x (785/259) = 22732
Long term capital gain = 1000000 - 22732 = 977268
Income tax on capital gain = 977268 x 20% = 195453.6
Invested Amount = 850000
Non-exempted capital gains = 977268 *(1-850000/1000000) = 146590
Income tax on non-exempted capital gains = 146590 x 20% = 29318
As total income this year including non exempted capital gains would be less than 2.5 lakh (non-taxable range for senior citizen), there won't be any income tax payable. But you would need to file income tax return to claim these benefits.
sir,
i have a commercial property in my [HUF] firm purchased in 2005 and no other property in this firm. now i want to sale the same. kindly help me in knowing the tax implication on 3 situations :
1] I want to buy a bank rented residential property .
2] or residential property [vaccant]
3] or if i buy commercial property.
If i sale my property this year and i have some capital gain, what is the tax implication .
@Bunty
You can save income tax on capital gains if residential house property is bought. This benefit is not available for commercial property.
If you sell property, you need to compute long term gains with indexation benefit and 20% income tax would be payable on this gain.
sir i have a single commercial property in HUF a/c
purchased amount Rs 25,00,000 [twenty five lac]
after indexation it will be approx. Rs 50,00,000 [fifty lac]
i have sold the property in Rs 1,50,00,000 [one crore fifty lac]
Q. I am planning to buy a residential property worth Rs 1,17,00,000. so what will be the tax liability?
Q please tell me i want save full capital gain amount, so how much mininum i have to invest to save the capital gain?
@Bunty
1. As you are buying residential property with cost less than sale consideration of commercial property, you would need to pay taxes on remaining unused sale consideration proportionally. LTCG would be 1 crore here.
Non-exempted capital gains = LTCG *(1-(1.17/1.5)) = 22 lakh
Income tax on non-exempted capital gains = 22,000,00 x 20%
2. To save income tax fully, you would need to invest atleast 1.5 crore.
Whether tax benefit U/S 54F available If Husband and wife already own one property in joint name. And they have sold a plot which was also in joint name with 50/50 share holding. And the proceeds of plot is divided 50/50 and each one of them buy one property in individual names from thier respective shares from the proceeds of land. (I.e. husband buy one property and wife also buy one property).
@P Kumar
Tax benefit would be available u/s 54F if one does not own (either single or joint) more than two residential house properties at the time of sale of plot.
In your provided case, it would be applicable.