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 Batra Ji, Thanks for reply, my another question is:i had sold the plantation of paddy to farmers for the worth rupees five lacs in the paddy season grown onto my agricultural land, my question is whether it is agricultural income or not?
@Anish
Yes, it would be agricultural income only.
I have a agriculture plot of 10 guntas which is now in Urban are, if i sell it can i invest in agriculture land.
@M Girish
Yes, you can save tax by investing into agricultural land u/s 54B.
Pankaj Ji,
First of all thanks a lot for a very informative blog to solve the capital gains tax mystery to people like me.
I would like to know what is the acceptable as 'proof of purchase' of new residential property using capital gains. To be more specific, is 'sales deed' must or an allotment letter from Builder with payment receipts is good enough. Here is the background:
I had sold a property (plot) in on 2nd Arpil 2010. I have opened a Capital Gains Account with SBI in March 2011. Now I have identified a new property (flat) and have made some payments to a highly reputed builder in Pune from the capital gains account. But the agreement (sales deed) is going to take some more time and may not happen till May 2012.
In such a case, I would like to know if the payments made to the builder till March 2012 and allotment letter from builder is acceptable as proof of investment OR sales deed MUST happen before 2nd April 2012 for me to get the capital gain tax exemption.
Thanks and Regards,
Sachin.
@Sachin
In order to get capital gain tax benefit u/s 54F, you should get possession of new property and transfer in your name (through registered deed) before end of two years.
Dear Batra Ji
I had a piece of land ,which i purchased in 230000 now after 5yrs when i am selling it, i m getting 36lac.the problem is that i wish to book a flat for myself so i wanna to know whether the lock period of 3 year will begin from the booking date or when i do my registry for my flat....(the flat is being constructed in my locality it will take near about 2.5 year ) so i wanna ask if the lock period will b consider from registry then the lock period will be 3+2.5=5.5 years is it so ???CAN U PLEASE EXPLAIN ME OUT ...
@Sumit
If you want to save income tax on land sale, you must possession and registration of new flat before end of two years from land sale date.
Dear sir,DO I HAVE DO THE REGISTRY WITHIN 2 YRS AS SAID BY U. IF I DEPOSIT THE AMOUNT IN THE CAPITAL GAIN ACCOUNT SCHEME AND DO THE PAYMENT FROM THERE ,CAN I NOT GET THE TIME LIMIT OF THREE YEAR ?
@Sumit
Three years time is only available if you getting your own house constructed. For flat/house/apartment purchased from seller, two years period is allowed.
thank u sir for the reply now i more doubt that if i want to sell that flat which i have purchased from the long term capital gain income is there any lock period for that also or can i sell it after the period of three years ......
@Sumit
If you sell new property, which is purchased to save income tax from long term gains, before three years, exemption from income tax would become invalid.
one of my client Made a sell of Residential flat on which he has made of Rs. 30 lac & that 30 lac has been invested in FD. So is he liable for tax & if not under which section he will be get tax benefit.
@Paresh
There is no tax benefit on investing into normal bank fixed deposit.
To save income tax on capital gains, one has to buy residential house property or invest into capital gain bonds.
hi pankaj,
I WANT TO TELL U THAT I M SOLD OUT THE PROPERTY OF INHERITED AGRICULTURAL LAND IN GUJRAT ON 16-05-2010 IN Rs. 18,00,000/- IN CASH WHICH PROPERTY INHERITED TO ME ON 02-01-1983 ON DEATH OF MY FATHER, NOW IN MARCH-2012 I WANT TO PURCHASE A MORE THAN ONE RESIDENTIAL PROPERTY IN UNDER CONSTRUCTION OF 3 FLATS OF Rs. 6,00,000/- EACH IN THANE. SO PLEASE TELL ME CAN I PURCHASE THE RESIDENTIAL PROPERTY AFTER 18 MONTHS AGAINST THE SELL OF AGRICULTURAL LAND. AND I M LIABLE TO ANY INCOME TAX OR CAPITAL GAIN IN THIS MATTER
THIS AMOUNT OF Rs. 18,00,000/- IS MY CASH IN HAND AND I WAS NOT DEPOSITED IT IN ANY BANK ACCOUNT
@Juned
Income tax on long term capital gain is payable for transfer for property through registered deed where stamp duty is paid.
For all cash transactions, it would be considered black sort of money and cannot be shown for income tax.
To save income tax on capital gains fully, a single residential house property can be bought/constructed for cost more than sale price of old property.
Dear Pankaj,
I have bought a house at mumbai at 8 Laks in 2004 and have bought a new 2 nd house in 2011 for 40 laks. I would like to sell the old house and the present index price is 3300 psqft it will earn me 40 Laks.
can i transfer this loan to the 2 nd house and get the tax exception.
or tell me any other way i can say the tax.
@Rajan
If possession of second house was received within one year before date of transfer of first flat, then you can save income tax on capital gain u/s 54.
mr batra, my mother in law gifted to my wife approx 100 grams gold on 1979. but at that time no documents prepared now if my wife sale the gold f/y 2012 what will be her tax liabilities? how she can avoid tax liabilities?
@Biswajit
Please see below computation for LTCG. Purchase year would be assumed as 1st April, 1981 and gold price on that day was 1670 Rs per 10 gms. Selling price is assumed as 28000 per 10 gms.
Purchase Year = 1981-82, Purchase Cost = 16700, Cost Inflation Index (CII) for purchase year = 100
Sale Year = 2011-12, Selling price = 280000, CII for sale year = 785
Indexed Purchase price = 16700 x (785/100) = 131095
Long term capital gain = 280000 - 131095 = 148905
Income tax on capital gain = 148905 x 20% = 29781
To save income tax on capital gains, either a residential property can be bought/constructed on your wife's name or investment in capital gain bonds can be done. To save tax fully, whole sale price needs to be invested.
Hi Mr.Pankaj,
I am asking this question for my academic purposes.
If I sell Land (not an agricultural land) and invest those funds in the acquiring the First Residential House property, I can claim the same as Exemption u\s54F.
Here my query is can i acquire the said new house and register the same in my spouse's name to claim exemption u\s 54F? If i cant claim, then pls provide the supporting info/caselaws/sec/rules in this regard.
Thanks in advance,
Eswar.MK
@Eswar
New property should be on same person's name who got capital gains (by selling old property) to claim income tax benefit.
If you want to buy new house on your wife's name, you can transfer land on her name first and let her sell land and earn capital gains.
Sir, My sister was an assessee three years back, now she has left the job and not paying any income tax. My father had bought a residential Site in the year 2000 for Rs. 4 Lacs, and gifted the same to my sister on 17/1/2009. My sister sold the said site on 25/9/2012 for Rs. 18 Lacs. Does it attracts LCG and if yes how much. Now she is trying to purchase a Site or house investing the entire amount. Can she purchase a Site amounting to the said 18 Lacs or can she purchase two sites amounting to Rs. 9 Lacs each or is there any conditions, please answer Sir
@P.Manjunath
See computation for LTCG below:
Purchase Year = 2000-01, Purchase Cost = 400000, Cost Inflation Index (CII) for purchase year = 406
Sale Year = 2011-12, Selling price = 1800000, CII for sale year = 785
Indexed Purchase price = 400000 x (785/406) = 773399
Long term capital gain = 1800000 - 773399 = 1026601
Income tax on capital gain = 1026601 x 20% = 205320.2
She can save this income tax by buying/constructing a residential house property. Tax benefit would be available against a single property purchase and not more than that. In case old property was a house/flat/apartment, she can save tax fully by buying new house/flat/apartment for cost more than 10.3 lakh. In case old property was plot/land, she can save tax fully by buying house/flat/apartment for cost more than 18 lakh.