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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Hi Pankaj Sir,
Thanks for your article. I am a newbie here and need a small help. We are 2 brothers and have a flat on our mothers name. We intend to sell it off and buy a house each from half the amount that each receives. There have been some talks but I am not sure if they are legally right for 2012 - it is said that the sale of the house will attract capital gains tax irrespective of one buying a house immediately. How true is this? How can we save capital gains if we are to outright buy a house against the sale proceeds?
@Avinash
You can save income tax on capital gains as you are buying another house from sale proceeds u/s 54.
This rule would continue even next year 2012-13 also.
sir my friend have old house purchased during 1975 for Rs 600 only.now he want to sell his house for Rs 25 lacs and as he is handicap he want to invest all his money in bank as fixed deposit and want to get income by way f interest on that FD cz he cant work anymore.What is his tax liability for current year as he dnt want to gt indexed his income.
thanks and regards
charanjeet singh
@Charanjeet
He would need to compute long term gains by indexation method. 20% income tax is payable on that gain.
To save income tax on this gain, either he would need to buy another residential house property, or he can invest gains part into capital gain bonds. He is free to invest remaining sale amount (apart from gains) anywhere.
Hi Pankaj ji,
It's great blog with valuable information.
I had a flat in Pune and sold in March 12 for 28 lakhs which i bought in 2004 for 650000.I also bought a flat last April in Vizag for 25 lakhs under loan. Can i get exemption from the LTCG tax by paying the 2nd flat home loan in installments which i did most of it from last one year? If not, what is the final date to invest in NHAI Bonds? Thank you very much in advance for your advice.
@Raja
If possession of Vizag flat was taken within one year time before Pune flat sale, no income tax would be payable on long term gains u/s 54F.
Last date for investment in capital gain bonds is six months from date of sale.
Thanks Pankaj ji,
What if the registration of the flat was done before 1 year 1 week?
Can i invest in another residential plot? if i won't get rebate on my vizag flat?
Kind regards,
Raja
@Raja
If registration was done before one year, it may cause some issue in tax benefit claim.
Income tax rules are not that strict about possession date and in some cases registration and even sale agreement has been assumed as date of purchase.
You can even claim tax benefit if you buy another residential property from gains amount.
Hi Pankaj,
My mum recently sold our ancestors property for 1CR and the entire amount was in the bank for alomst 15 months we have bought another property for 70 lakhs and plan to invest the remaining into Capital gains invest bonds is there a limit to the amount being invested on caipital gains invest bonds as we plan to invest the remaining 30 lakhs into capital gains to avoid income tax being paid.
Do we have to pay any tax due to the delay from what i;m being told this should have been invested within 6 months. are there any tax issues
really appreciate all yr help here .
@Pete
In order to avail tax benefit on long term gains, she should have invested amount into capital gain scheme account before last date of income tax return filing or invested into capital gain bonds within six months of sale.
Now as already 15 months have passed and amount is in bank account only, no tax benefit can be availed.
20% income tax would be payable on long term gains. Plus late payment penalty on this income tax would also be payable due to delay.
Hi Pankaj,
Thank-you very much for yr feedback, I'm trying to get my head round this can we not invest the remaining 30 lakhs into capital gains invest bonds or are there any restrictions now as its over 6 months once the IT and penalty has been paid etc.
Also with the 20% income tax would that be payable on the interest we have received for the 15 months from the bank.
This 20% along with the late payment penalty will be required to be filed as IT returns is there a timescale for this also are there any tax exemptions here as my mum is over 65yrs old i.e sr. citizen.
Lastly what is a capital gains scheme account ? can one invest into this as well
Appreciate all yr help
Kind Regards
Pete
@Pete
In order to claim tax benefit u/s 54EC, Time limit to invest into capital gain bonds is six months from asset sale.
20% income tax would be payable only on long term gains part. Any income received from bank interest would be added to taxable income and taxed as per normal slab rates.
Last date for filing income tax return without late filing penalty would be 31st March.
If your mother does not have any other taxable income, then she can reduce non-taxable part (2.4 lakh) from long term gains and pay 20% income tax on remaining gains.
Capital gains scheme account is an account in which capital gains needs to be deposited, in case one wants to claim tax benefit on residential property purchase u/s 54 or 54F. There is no need to invest into this account now as you have already missed the dates.
Dear Pankaj sir,
It seems you are the one that people are falling back. I have a doubt with respect to some property matters. We had a home in Chhattisgarh, we made it in the year 1991, worth 4 lakhs at that time. Presently we want to sell the house (both myself and dad own it) worth 55 lakhs. Since i came out and got settled in Bangalore, I have currently invested 15 lakh in a new residential flat (took 15 lakhs from my dad earlier this year) Also, my dad is buying a new property in Bhilai worth 30 lakhs. How do you save my capital gains tax , can I divide it among flats in Bangalore and Bhilai. Please help me out.Amit
@Amit
There is long term gains of around 40 lakh on old property sale.
Purchase Year = 1991-92, Purchase Cost = 400000, Cost Inflation Index (CII) for purchase year = 199
Sale Year = 2011-12, Selling price = 5500000, CII for sale year = 785
Indexed Purchase price = 400000 x (785/199) = 1577889
Long term capital gain = 5500000 - 1577889 = 3922111
As property was jointly owned by you and your father, both of you would have around 20 lakh of gains.
To save income tax on this gain fully, both of you can buy/construct a residential house property for value more than 20 lakh.
You can claim exemption for Bangalore property and your father can do same for Bhilai property.
Possession for new property should have been taken within one year before and two years after sale of Chattisgarh house.
Hi Pankaj sir,
We purchased a residential land which in 2002-3 for 2,50,000/-. now we sold it for 43,00,000 and purchased an agricultural land worth 45,00,000/-. Are we still need to pay long term capital gain tax?
@Kiran
If sold asset is not agricultural land, there is no tax benefit on purchase of a agricultural land from sale proceeds.
You would need to pay income tax on long term gains.
Where an assessee (husband) sold the a residential property owned solely by him and purchased another single residential property (with all capital gain amount) in the name of his wife and him (50:50), will capital gain exemption is allowed during tax return?
Please help.
@Shweta
There won't be any issue in case of new property bought in joint names. If amount more than capital gains have been invested by husband in new purchase, no income tax would be payable on gains.
hi
I sold my flat in this current financal year.
I would like to pay my capital gain tax on hthis sale
Pls confirm me which form /challan i need to submit/fill
Rgds
@Suresh
You should choose following choices while paying tax online: 1. CHALLAN NO./ITNS 280 2.(0021)INCOME-TAX (OTHER THAN COMPANIES) 3.(300)SELF ASSESSMENT TAX
My husband purchased plot in July 2008 for RS 1200000/- he gave it to developer for development in July 2009. in consideration for that we received one flat . plot size is 303sq meter./ flat size is 1800 sq ft. Builder made construction on the plot of 6000 sq ft. We receive possession of flat in march 2011. that time flat value was Rs 1500/- per sq ft. i.e. 1800*1000 = 1800000/- what will be tax consequences. For which Assessment Year?
@Madhura
It may be considered as plot sale and flat purchase.
Tax consequences and assessment year would be decided based on dates when plot was transferred to developer's name and when possession was received.
As all these happened within less than three years from plot purchase, it would be short term gains. Such gains would be added to taxable income and taxed as per slab rates.
Short term gains would be = price of plot mentioned on registered sale deed - buying price (1200000).
Dear Sir,
I plan to sell flat in April 2012 which was purchase in jan 2008. will this transcation have capital gain tax? what type of property (flat or land) to be purchased to avoid tax? Do I have to deposit money in special bank account?
Regards
RG
@RG
It would be long term gains and such gains with indexation computation would be taxable @ 20% rate.
In order to avoid this income tax fully, you can either buy/construct a residential house property (not land) u/s 54 or invest into capital gain bonds u/s 54EC.
If new property is not purchased/constructed before last date of return filing for year in which gains occurred (31st July, 2013 in your case), gains have to be invested into capital gain scheme accounts.