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 and my brother had a flat in Joint name in Mumbai which was bought in 1995 for Rs.10 lacs and we sold this year for Rs.65 lacs.
I want to know how much will be capital tax and whether we have to buy only residential flat or we can buy any property-land/office.
also, whether we have to buy jointly or can we buy independently
@Mukesh
See long term gains and income tax computation below:
Purchase Year = 1995-96, Purchase Cost = 1000000, Cost Inflation Index (CII) for purchase year = 281
Sale Year = 2011-12, Selling price = 6500000, CII for sale year = 785
Indexed Purchase price = 1000000 x (785/281) = 2793594
Long term capital gain = 6500000 - 2793594 = 3706406
Income tax on capital gain = 3706406 x 20% = 741281.2
As flat was jointly owned by you and your brother, considering equal share of both, each of you would have a long term gains of around 18.54 lakh.
To save income tax on this gain, you can buy/construct a residential house property u/s 54 or invest into capital gain bonds u/s 54EC.
Under section 54, new property has to be residential house property only. If a plot is purchased, house should be constructed on same.
To fully save income tax new property cost must be more than gains (18.54 lakh).
New property can be purchased in joint names or independently. Your share in new purchase should be more than gains to save tax fully.
Thanks for your reply. What type of capital gain bonds are available and what will the minimum period we have to hold and how much interest is available.
After investing for minimum period, can we sell the same and what taxes we have to pay on the amount received.
@Mukesh
Capital gain bonds are available for three year's investment. It offers 6% annual interest.
NHAI and REC issue such bonds.
After investment period is over, principal amount would be tax free but interest would be taxable like normal bank interest. It would be added to your taxable income and taxed as per slab rates.
Can I buy two residential flats to avail LTCG or buy one flat and balance amount to be invested in bonds.
@Mukesh
You cannot invest into more than one residential flats to avail tax benefits u/s 54/54F.
But investment in capital gain bonds and residential property may be done simultaneously.
If I buy a residential flat, then upto how many period I have to hold it or can I sell as and when I desire.
Will it again be treated long term or short term capital gain.
@Mukesh
You would have to hold new property upto three years.
After three years its sale would again give rise to long term gains.
If I buy a flat for Rs.15 lacs+ Rs. 1 lacs for registeration and then I spend around Rs.10 lacs for renovation, will this expense will be eligible for LTCG.
@Mukesh
If renovation expenses are incurred for structural/construction changes like addition of a new floor, change of map layout, addition of new rooms etc, then it can be included in new property cost.
Hi Pankaj,
My mother has recently sold a flat and has earned a LTCG. In addition to this flat sold in March 2012, there are two residential plots and one flat on her name, and commercial shops too.
My queries are as below:
1. Is she eligible to save the capital gain by investing in some residential house/flat? 2. Is residential plot considered as a residential house?
3. If a residential plot is sold, can the capital gain be exempted from tax in any other way than investing into capital gain bonds?
4. Also, she is planning to sell one of the commercial shop. Is it possible to save LTCG on sale of the shop as well?
Please advise.
Thanks
Rohit
@Rohit
1. Yes, she is eligible to save income tax on capital gains by investing into another residential house property. This is as per section 54. As sold property was residential house property, section 54 would apply and not 54F.
2. Residential plot is not considered as residential house property.
3. If residential plot is sold, either 54F or 54EC can be used to claim tax benefits. 54F is not applicable in case person owns more than one residential house property at the time of sale of plot. Section 54EC can still be used for tax benefits by investing into capital gain bonds.
4. In case of sale of commercial shop also (and all other assets sale other a residential house property like gold, foreign company stocks etc.) , same 54F and 54EC can used.
Thanks for your response Pankaj.
1. Could you please elaborate on "section 54 would apply and not 54F". Why would section 54F not apply if residential plots are not considered as residential houses? Is it because at the time of sale there were two flats in my mother's name? (including the one which is sold).
4. If we want to take use of 54F when selling the commercial shop, do we need to make sure that not more than one residential property is in my mother's name?
Thanks again,
Rohit
@Rohit
1. Section 54 is available for tax benefit only if sold asset is a residential house property else 54F applies.
2. Tax benefit under section 54F won't be available if person owns more than one residential house properties at the time of sale of asset (commercial shop/residential plot/gold etc).
Thanks Pankaj.
1. Will it be correct to say that if the sold property is a residential flat, then tax can be exempted by investing into other residential house/flat, irrespective of how many residential houses are owned by the person?
When the property is not residential, then section 54 is not applicable but section 54F is.
2. If the residential property is sold in March 2012, how much time is available to invest into other residential property or capital gain bonds?
Thanks
Rohit
@Rohit
1. Yes.
2. Under section 54EC Investment into capital gain bonds can be done within six months of sale. Under section 54 and 54F, if a residential house property is purchased, possession of same should be received within two years from sale (three years in case house is self constructed). if possession is not received before last date of income tax return filing (31st July, 2012), capital gain scheme account needs to be opened and capital gains (or sale consideration amount in case of 54F) has to be invested into this account. This account can be used to pay builder/seller of new identified property.
Thanks a lot Pankaj ji. Have a good evening.
hi mr. pankaj my question is i have a commercial shop or commercial land if i sold after three year can i re purchase commercial shop or commercial land for exemption of capital gain
@Amit
There is no exemption on reinvestment into commercial land or shop.
Hi Pankaj,
I am glad to see this link and I hope to get answers, Thanks in advance.
we have sold a properly (4800 sqft land) in my mother’s name for 66 lakhs in sep 2010 and we have booked a Residential flat in her name worth of 2.38 Cr.
The flat is under construction and we have already pain 66 lakhs towards advance and this amount is now exempt of capital gains under section 54F
Question:
1) Can we sell another property in my mother's name (may be worth 60 lakhs) and put that in to the same residential house - will that amount will also be exempted from LTCG
2) We sold another property in my dad's name for 15 Lakhs. There is a provision that we can alter the agreement with the builder and include my dad as a joint owner for the new flat. if we direct this 15 lakhs towards the same flat will this amount be exempted from LTCG tas?
3) In addition if my mother sells her jewels which has been inherited and put that money in the purchase of the new flat along with the amount incurred from the same of the property as well. is this allowed.
3) It is vague at this point whether we will have all the funds in my mom's name to finalize the purchase of the flat. It will be hard to get loan approved on my mom's name. If i avail a loan by including my name in the agreement, will there be a problem later for the already exempted capital gain from the property sold?
So my question is more towards, can multiple sale be directed to one purchase of higer value. will both amounts be exempted? also if a join ownership is allowed and each owner can bring in their own capital gains from different sources?
It would be of great help if you could answer my questions.
@Manoj
If at the time of sale of asset (not a residential house property), if a person owns more than one residential house properties than section 54F is not applicable.
Also if possession of new purchased house property is not received before last date of income tax return filing (31st July 2011), a capital gain scheme account must be opened for claiming tax benefit under 54F.
1. She can sell another property and claim tax benefit under section 54F for investment into same residential house. Provided conditions mentioned above are followed.
2. New property can have joint ownership. Keep your father's share value in new property equal or more than 15 lakh. Similarly keep mother's share value more than 1.26 crore (60+66 lakh) to make tax zero.
3. There won't be any issue if you also have share in new property and you get loan for same. You have remaining share value of 97 lakh in your name.
So amount from multiple sales can be combined to purchase a residential house property and claim tax benefits on all capital gains. Multiple people who earned capital gains can join to buy a residential house property to save income tax.
i have sold a site in bangalore to 40 lakhs officially and deposited the same in my SB account at SBM. Now i would like to reinvest the same to buy a flat at Bangalore. Since my wife is a house wife and do not own any property i wish to have the new property registered in her name . The amoung of 40 lakhs is received in my name as DD. I would like to reinves the complete to buy a new flat registerring in my wifes name. Is there is provision for the same.
@Dr.M.Shanthakumar
If you invest into your wife's name, you may not get tax benefit under section 54/54F.
Hello pankaj ji
if an agricultural land sitates within the 8 kms of any panchayat having a population of more then 10000 or more wether sale of that land would come under LTcapital gain tax or not & what is the procedure to cheque on net about the notified lands not covered under LTcapital gain tax?
@Anish
Your land will not be counted as capital asset if Land is outside the jurisdiction of a municipality area or not even within eight kilometers of municipality area.
You can check same with local municipal office.
Quite insightful write-up..thanks for sharing. Great going..keep it up. Good Luck !!
hi sir, i want to do the real estate business but i dont have exepriences but i intresed to do the bussiness wat i have to do please help me sir.....................
Can I use the sale of proceeds of the ancestral property intended to be gifted to me by my father in june 2012 amount(27 lakh) to repay the loans which i intend to take( thirty lakh) to finance the house .First installment of loan to begin from oct 2012 and complete by dec 2014.The booking letter FOR ALOTTMENT OF newly constructed apartment in march 2012 has been issued in my name and first installment from my savings was made in aug 2012However the house will be completed in 2015 dec and posession in march 2016.I intend to take loan first in oct 2012 and then settle the loan from sale proceeds of ancestral (june2012) house gifted to me however I will have posession of MY NEW apartment in march2016.I DO NOT HAVE ANY PROPERTY IN MY NAME. Booking letter was issued in march 2012 for new apartment costing 50 lakh while i deposited the comittment money FOR THE SAID PROJECT in aug 2011 .I will have posession in march 2016 of new apartment and do i save capital gains tax from sale of gifted property and reinvest that in repayment of loan for which i have taken loan in oct 2012 and psession in march 2016.
@Shiva
There is no tax benefit on paying home loans from long term gains.
But as you are buying a residential house property, you can claim tax benefits under section 54/54F.
Possession for new house should be received before June 2014 in order to get tax benefits.
Sir,
If I invest Rs. 30 LTCC in NHAI/REC bond and withdraw it after the period of 3 years. is the LTCG exempt in the year of withdrawal
@Ankur
If investment in capital gain bonds are done, LTCG would be exempt to allowed extent of investment.
Interest on these bonds would still be taxable under income from other sources as per your slab rates.