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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Pankaj,
Here is one complicated question (from my point of view :))
My father purchased land in 1991, gave it to me (not sold) in 2004. I took home loan in 2004 for 18 lakhs, spent 5 more lakhs as the contractor passed way, finished the house, occupied from 2005 till now.
My property, the land especially is worth 1.3 crores and the building sitting on it, some 20lakhs. If I sell this property (land + building), I will get 1.5 crores.
Based on this, the following are the questions I have:
What is the tax implication for this amount when I put this in a fixed deposit?
What if I purchase a land for 90 lakhs and put the rest in fixed deposit?
What if I, apart from land purchase, construct a house for 50 lakhs (works to 1.4 crores) and put the balance of 10 lakhs in fixed deposit?
Finally, since I need to furnish the house, spend the 10 lakhs entirely and not only that, put some more of my money for furnishing?
If not for land + buliding + furnishing, let us say I purchase a flat for 60 lakhs or two flats for 1.2 crores (separate registrations) and put balance in fixed deposit?
What would be my tax benefits or tax outgo based on each of the options given above?
@Krishna
1. There is no income tax benefit if you put the sale amount into normal bank fixed deposit.
2. There is also no tax benefit on purchase of land. But tax benefit would be available if house is constructed on this land.
3. If you buy land for 90 lakh and spend 50 lakh on construction, then there would not be any tax payable on long term gains. You would be free to spend/invest remaining 10 lakh wherever you want.
4. Furnishing amount won't be included in purchase cost for tax benefit.
5. Tax benefit would only be available against a single property. If you buy two flat, you would be only able to claim tax benefit against one purchase.
Please see below sample computation for your long term gains (Please note that purchase cost in 1991 has been assumed, please use actual values)
Purchase Year = 1991-92, Purchase Cost = 50000, Cost Inflation Index (CII) for purchase year = 199
Construction Year = 2004-05, Construction Cost = 2300000, Cost Inflation Index (CII) for Construction year = 480
Sale Year = 2011-12, Selling price = 15000000, CII for sale year = 785
Indexed Purchase/Construction Cost = 50000 x (785/199) + 2300000 x (785/480) = 3958694
Long term capital gain = 15000000 - 3958694 = 11041306
Income tax on capital gain = 11041306 x 20% = 2208261.2
So long term gains is around 1.1 crore, so income tax can be saved fully if these gains is reinvested into residential house property or into capital gain bonds.
Hi, Pankaj,
1. I want to sale my single residential property in same f.y. i was purchase that property in f.y. 2006-2007 in Rs. 27.5 Lacs & I have to sell it in Rs. 65,00,000/- the Long Term Capital Gain which is generate in this matter the same I will invest in another Residential Property which is Under Construction & I have been paid the amount in slabwise in next 3 years can I get Deduction in u/s. 54 in under construction & payment will slabwise please expelain me
2. I have a Residential Property I want to give it on rent to hotelier he will pay me a Rent of Rs. 10,80,000/- p.a. can i applicable for service tax if yes how can i proceed that amount of service tax I will collect from the tenant or i can bear it on my pocket please explain me deeply. thanks
@Juned
1. In case you buy a property for cost more than 23.5 lakh and possession of same is received before end of two years from sale of old property, there won't be any income tax payable.
You can buy under construction property and pay in installments. There is no issue in it u/s 54, but possession of this should be received within two years of old property sale.
2. We don't have much expertise on service tax and related matters. Please consult a CA or tax professional in this case.
Dear Pankaj Ji, Hello! Myself is a senior citizen. I had sold a residential plot purchased in nov.2010(Purchase Price Rs 200000/-) on 26/03/12 for Rs.1074747/- i had interest income of Rs.218750/- & had agricultural income of Rs.450000/- in this financila year i had made the savings covered u/s 80-c of Rs .100000/- have a mediclaim of Rs. 8872/- Kindly calculate my tax liability & tell me the due date of tax deposit.
Thanks.
@Anish
As plot has been sold before three years, it would be short term gain. Whole gains (Rs 874747) would be added to you taxable income and taxed as per your slab rates.
Your income tax would be around 2.16 lakh. You need to deposit this tax before 31st March to avoid interest penalty on late payment.
Hi Pankaj,
I had purchased the flat which I now want to sell when I was an NRI. I also own a 2bhk where I live which i purchased when I was working abroad.
Now I want to sell one flat. My question is " Do I have to reinvest the entire proceeds of the sale or can I purchase with my long term capital gain amount and the remaining put in fixed deposit for monthly income plan as I have no other source of income.
Flat purchase price was around 28 lakhs in 2005 and now selling for 75 lakhs by end of March or beginning of April 2012.
Can u kindly calculate the Index Value and Capital gains on the said price.
Thanks much.....Dorothy
Pls. reply asap.
@Dorothy
As property being sold is a residential house property, section 54 would apply and you need to reinvest only long term gains part.
Purchase Year = 2005-06, Purchase Cost = 2800000, Cost Inflation Index (CII) for purchase year = 497
Sale Year = 2011-12, Selling price = 7500000, CII for sale year = 785
Indexed Purchase price = 2800000 x (785/497) = 4422535
Long term capital gain = 7500000 - 4422535 = 3077465
Income tax on capital gain = 3077465 x 20% = 615493
sir,
Before 15 years back my marriage time my father transfer share of land in my name. Now I have sold it of five lakhs and fixed deposit in saving bank. If it is attact of any type of income tax payable
@Sushma
Yes, sale would attract long term capital gains, which is taxable.
Please compute income tax using below method:
Purchase Year = A (year in which your father bought it), Purchase Cost = P (cost with which your father bought it), Cost Inflation Index (CII) for purchase year = X
Sale Year = B, Selling price = Q (5 lakh), 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%
sir, it is difficult to calculate the value of land because father not bought this land, father's father transfer the land on father's name. like before two three generation holded this land in our family. Only I have sold the land that received me the share
of mine. I have received to be it in my marriage
thanking you
@Sushma
You would need to consider a fair market value as on 1st April, 1981 as purchase cost and then compute long term gains with indexation rules.
if a house is taken in the name of a minor child wil it amount to exemption under section 54 F????? if not how wil it be allowed as an exemption under the Income Tax Act ???
@Vivek
To get benefit u/s 54F, new residential property should be on same person's name who has gained from sale.
if not under section 54 f then wil it be liable to exemption under any other section?
@Vivek
There would not be any exemption for investment under a minor child's name.
Dear Sir,
What is the Long term capital gain tax rate without indexation using CII and on which asset classes it is applicable. Weather it is applicable on LTCG from sale of land. are we free to choose between LTCG Tax with indexation and without indexation.
@Kamal
There is no computation like without indexation using CII.
Indexation computation is done only with CII.
On sale of land, only indexation computation is applicable and not without it. Gain computation w/o indexation is only applicable to certain debt based mutual funds and similar non-equity mutual funds.
could u please brief me regarding section 10(38) of the IT Act.....!!!
@Vivek
It makes Long term gains (sold after a year) from equity investment (mutual funds/stocks listed on Indian stock market) non-taxable in case Securities transaction tax has been paid on sale.
Hello Pankaj Ji,
My brother had booked asociety flat at Bhiwadi at installments in 2006(total value 23.5lacs) of which the possession was given in Nov.10 inspite of Nov.09. Now he had sold the same for Rs.29lac in March2012. Now my question is wether it would be a long term loss or short term gain. As in society flats payment schedule is divided into two segments, one is land cost & another is construction cost, so whether the possession of the said flat would be counted from the payment of Ist installment of the construction cost or from the original possession date for the purpose of Income tax act?
@Anish
If we strictly follow income tax rules, then based on possession date, its a short term gain of Rs 5.5 lakh.
But in some court rulings, booking and allotment dates have also been used to compute taxabliity.
If you decide to take it as long term loss and income tax department sends notice to prove same, you may have to consult a reputed tax professional/CA who has experienced in property matters to prepare your case.