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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I am a senior citizen and in 1993 i receved in will a house from my sister who unfortunately expired .How ever i got the house registred in name of myself only in 2006 as there was pending court case with the tenent who left it in 2001.My sister had spent around rs 40,000 to get the house and fight the legal case .This old house is now bwing sold at 32 lakhs .in 2012.what will be my tax liabilities please helpmeWill the house be considered in my name from registered will date in 1993 or the date of registration in 2006 for calculating LTCG
@Siddharth
You need to compute long term capital gains on property sale. You should assume actual purchase year and cost as spent by your sister originally.
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%
Hi pankaj,
My grandfather has written a will and as per that my father is the owner of that house after grand father. he passed away 1 and half years back. we did not do the transfer till now.
1. Are we eligible to sell the house now? or should we need to transfer that to my father s name and then only eligible to sell (to avoid short term capital gains)?
Pls guide me..
@Vignesh
As per will, new house would already be your father's and he can sell it.
However there may be a need to get additional transfer document created from court showing the will.
Short term gains would not apply here. It would be a long term asset. Original cost and year in which property was purchased would be taken for LTCG computation.
thanks pankaj
Dear Mr Batra
Kindly advise: Short Term Capital Gain of 4.6 lakh made on a flat sold within 2.5 years. How to save tax? Flat sold in apr 11. Sudesh
@Sudesh
No way to save tax on short term gains. It would be added to taxable income and taxed as per slab rates.
Hi Pankaj i have sold out my mumbai flate for 33 lack on jan 2012 originaly taken on 2005 for 6 lack and paid 10 lack as home loan dues and remaining 23 lack i am investing in new under constrction flate that i will pay by august 2012
whether i have to pay any tax on it pl suggest
@Suraj
As new flat cost would be more than capital gains earned from old flat sale, there would not be any income tax payable u/s 54.
But make sure possession of new is received before Jan 2014. And if possession is not received before 31st July, 2012, you would need to invest capital gains into capital gain scheme account and pay towards new flat from that account.
Hi pankaj,
I have sold a residential site for Rs,25lakhs last month and planning to purchase a plot for the same value.I have already two houses.Does it atract capital gain tax. Have I to deposit this amount in a capital gain A/C
Please help
Thanks
stephen
@Stephen
There is no income tax benefit on purchase of a plot from capital gains.
Secondly if residential site being sold is not a residential house property (build up house/flat/apartment/floor), you may not even get tax benefit u/s 54F as you already own more than one residential house properties.
My Uncle (aged around 77 years, with no legal heirs/dependents) sold his flat in Delhi in Oct 2009 for Rs.35 Lacs. The Circle Rate Value of that flat at that time was around Rs.10 Lacs.
He has now booked an under construction flat in Ghaziabad in March 2012 for Rs.31 Lacs. The Registry Cost would be around Rs.2 Lacs and add another Rs.2 Lacs to be spent on the house in form of electrical and other fittings and fixtures (thus making it a total of Rs.35 Lacs).
Since the house (1250 sqft, 3BHK) is still under construction, the Registry would be possible only by Nov or Dec 2012.
Will the transaction invite Capital Gain TAx??
If yes, any way to save it ??
Please respond.
Thanks and regards,
Sanjay Kumar.
@Sanjay
I am afraid to say that your uncle may have already lost tax benefit.
As per section 54, he should have got possession of residential property within two years period from sale. Three years period is only applicable for own construction of house.
Moreover, Did he deposited capital gains into capital gain scheme account before 31st July 2010? if not, then his tax benefit applicability is vanished at that time itself u/s 54.
Pankaj,
Had 2 questions:
1. I'm selling a flat for 1 crore, 10 lacs of which is going to be against built-in furniture. Since furniture is not accounted for in capital cost calculation, do I have to pay tax on this 10 lacs as regular income? I do not have receipts for the furniture but can take pictures of apt as proof. The present cost of furniture would be well over 10 lacs.
2. If I plan to invest the capital gains after a year in an apartment, can I invest the cpaital gains in a Fixed Deposit for a year or do I have to open a Capital Gains acct and keep the money in that till it is reinvested?
Thanks!
@Siva
As such furniture cost cannot be added in purchase cost of flat. If the same is also added to selling price (on registration documents), then long term gains would increase.
If this extra 10 lakh is not included in price mentioned on registration documents, then IT department may ask you source of this money. Then you will have to prove that this is consideration amount towards furniture.
If capital gains are not used and possession of new apartment is not received by last date of income tax return filing, then capital gains have to invested into capital gain scheme account.
Say if old flat is sold in April 2012, then you can keep amount in fixed deposits before 31st July 2013. But on 31st July 2013 this amount should be in capital gains scheme account.
Hello Shri Batra Sir,
I purchased a flat in Oct 2005 in Rs.21.91 Lac +stamp & registration Rs.1.36 Lac + Parking Rs.0.13 Lac and sold in April 2011 in Rs.85.00 Lac - Expenses in sell Rs.1.10 Lac. I booked a flat for Rs.48.18 Lac + Service Tax + Stamp & Registration and I have paid Rs.45.81 Lac including service Tax to the builder but the flat is under construction and sale deed to be executed on possession of the flat say by the end of July 2012. The agreement of allotment has been executed in June 2010. What will be Long Term Capital Gain Tax position in the F.Y.2011-2012.How much relief I will get under section 54.
@kaushalak
@Arun
See below computation for LTCG:
Purchase Year = 2005-06, Purchase Cost = 2340000, Cost Inflation Index (CII) for purchase year = 497
Sale Year = 2011-12, Selling price = 8390000, CII for sale year = 785
Indexed Purchase price = 2340000 x (785/497) = 3695976
Long term capital gain = 8390000 - 3695976 = 4694024
Income tax on capital gain = 4694024 x 20% = 938804.8
As cost of new flat is more than long term gains earned, there won't be any income tax as per section 54.
But please make sure that possession is received before July 2012, else you would have to open capital gains scheme account.
Thanks Mr.Batra but as I have already paid Rs.45.81 Lac to the builder till date. What will be the position of relief under section 54 for the above amount if in any case,I will not receive the possession before July 2012.How much amount to be deposited in capital gain scheme account.
@Arun
If possession is not received before 31st July, opening a capital gain scheme account is must condition for section 54.
You may invest only the unused portion (small notional amount in case fully used) of capital gains into capital gain scheme account.
If my father aged 80 sells his inherited property for 30 lakh and gifts the proceedings to me after after paying the tax which i utilize for payment to a construction linked property at 60 lakh ( i donot have any property in my name) do i attract any taxes .We intend to sale the property in june 2013 and i will get the posessis only in 2015 for my house.Will it be more beneficial for me to first get the gift deed in my name from my father and then sale the house in dec 2013 so that no taxes are paid as per capital gain rule .Will i be able to sell the ancestral house gifted by father in june 2013 before 3 year to avoid capital gain tax.I dont have any house in my name.pl suggest should i transfer the property as gift deed for my new property payment of 60 lakh in dec or should i ask father to sale the house and gift the money to mewhich is more beneficial.pl guide
@Rishabh
If your father has already paid taxes on long term capital gains and he gifts the remaining amount to you, there won't be any income tax payable from your side on this transaction.
If your father wants to save income tax on capital gains but does not want to buy/construct residential house property himself, he should gift property to your name first. Thus property would be sold by you and gains would be yours. To save income tax on this gains, you need to buy a residential house property and get possession for same before end of two years.
You would be able to sell ancestral house anytime as long term gains would be computed from actual date of purchase (as done by father/grandfather etc.)
hello mr. pankaj i have a question for you my father have a house since 1965 on his own name and currently he sold out it in 12 lac 11 thousand while they purchase it in 1965 in only 700 rupee.so is there any tax payble on it .and if its then how can i aviod it.without investment on property or in bonds
please reply thanks in advance
@Mayank
You need to compute long term gains and income tax using below 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%
As purchase was done before 1981, purchase year would be assumed as 1981-82, cost as fair market value at that time.
To save income tax on this gain, investment in residential house property or capital gain bonds can be done.