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 bought a HUDA plot at Bahadurgarh in Haryana for 4.5 lac in 4/2004. Now, I intend to sell it and purchase agricultural land out of the proceeds. What is the IT liability in this case? What is the best way to avoid tax?
@Vinod
There would not be any tax benefit on purchase of agricultural land.
If you want to save tax on LTCG, you would need to invest into a residential house property u/s 54F or into capital gain bonds u/s 54EC.
Hi,
Purchase date - 14/12/2007
Purchase price:= Paid to builder: 2017160, Stamp duty: 83510, Registration: 20200
Sale date: 13/04/2012
Sale price: 2900000
Commission paid to agent: 64000
I have another apartment where I live at the time of buying and selling of this apartment. In that case, am eligible to save tax by investment?
Is this short or long term gain?
What indexed purchase price:
What is capital gain?
What is tax?
Regards
RG
@RG
There won't be any gains from this sale. As per LTCG computation, it would result in long term capital loss.
Purchase Year = 2007-08, Purchase Cost = 2120870, Cost Inflation Index (CII) for purchase year = 551
Sale Year = 2012-13, Selling price = 2836000, CII for sale year = 850 (Assumed, as its not declared yet)
Indexed Purchase price = 2120870 x (850/551) = 3271760
Long term capital gain = 2836000 - 3271760 = -435760
Hi Pankaj,
Should depreciation of flat/apartment be deducted from sale amount for calculation of capital gain?
Regards
RG
@RG
Depreciation of flat/apartment cannot be deducted for capital gain computation.
Can I buy any residential flat/land anywhere in India for availing LTCG.
@Mukesh
You can buy residential house property anywhere in India for tax benefits u/s 54/54F.
In case land is bought, a house must be constructed on it.
Can I use the sale proceed money for my business for short term and then buy the property to avail LTCP
@Mukesh
You can use amount for any purpose before last date of income tax return filing for Financial year in which gains occurred. If possession for new property is not taken before this date, amount needs to be deposited to capital gain scheme account.
Thanks for reply. The other question is could i (individual Capacity) gift the amount to my own HUF, & what would be the Income tax position on the interest income over gifted amount which i got from the bank in my HUF FDR's?
@Anish
There won't be any income tax on gift received by HUF from its own member.
But income received on this gift's investment would be taxable as usual for HUF.
Sir,
I have deposited the Capital gain amount in the Capital gain account in a bank.I have booked a flat delivery of which is assured by March 2014-time frame of 2 years for the purchase of a dwelling unit.Supposing the Flat is not given possession or registered in my name though allotment letter is given,agreement entered and total money paid directly to the builder from my Capital Gain account.
Thanks
JP Singh
@JP Singh
If possession is not received within two years, exemption would not be available.
But in some court cases, some assessee have won cases by showing other documents like registration, allotment letter and proving that it was out of their control .
Hi Pankaj,
I bought a residential flat in Indirapuram Ghaziabad for 18.5 Lacs (Registered Amount was 16.5 Lacs) on Jan 2008 and then sold it on Mar 2012 for 28 Lacs.
Meanwhile, I had booked another NEW residential flat in Noida under construction on Nov 2010 for 45 Lacs and got allotment letter. By, March 2012, I had paid some 27 Lacs in new house construction.
After I sold, total money I got after home loan clearance was around 12 Lacs. Out of it, I had paid 5.1 Lacs to Noida flat builder for construction on Mar 2012. I still have some 10 lacs pending for new house. I plan to spend rest 7 lacs (from sold of old flat) into this new flat demand. I expect the possession by Oct-2013 of new house.
Please confirm, if LTPG is already saved in my scenario.
Thanks,
Vijay
@Vijay
As you are getting new flat possession within two years of old flat sale and new flat cost is more than long term gains (4.5 lakh), there won't be any income tax payable as per section 54.
But as possession is not received by 31st July 2012, make sure to invest 4.5 lakh (gains) into capital gain scheme account and pay builder from there.
Pankaj ji, it's a great blog.
I am going to sell (execute registry in favour of buyer) of my NOIDA authority flat on 10.05.12 and LTCG of this flat are Rs. 20 lakhs.
Further, I had booked another flat costing Rs. 35 lakhs with a builder for which I have already paid Rs. 25 lakhs from 08.08.10 to 30.04.12 i.e. the payments to builder started approx 2 years before sale of my NOIDA authority flat. Possession of this builder flat will certainly be before two years of sale of my NOIDA authority's flat.
Will I get LTCG considering the facts that I started paying to the builder two years before sale of my flat and how much exemption will be available to me.
@Dev Dutt
You can get tax benefit on new purchase if possession is received within two years from sale of old flat.
Pankaj ji, I understand that I will get the exemption irrespective of flat that I had booked another flat costing Rs. 35 lakhs with a builder for which I have already paid Rs. 25 lakhs from 08.08.10 to 30.04.12.
@Dev Dutt
As long as you get possession for new flat between 11-05-2011 and 09-05-2014, you would be eligible for tax benefit.
New property cost is more than long term gains, so income tax would be zero.
Make sure to deposit unused gains into capital gain scheme account in case possession is not received before 31st July 2013 (last date of income tax return filing).
HI PANKAJ,
I PURCHASED ONE FLAT IN NAVIMUMBAI AT 15.5LAKH IN 2007-DEC WHICH INCLUDED 13LAKH FROM BANK LOAN AND OTHER AMOUNT INCLUDES REGN AND STAMPDUTY CHARGES AND 1.5 LAKH CHEQUE PAID TO BUILDER..SO TOTALLY IT WAS IN WHITE MONEY.
NOW IN 2012-APR I AM GOING TO SELL FLAT IT FOR 25 LAKH, SO WHAT WILL BE LONG TERM CAPITAL GAIN IN THIS CASE AND IS THERE ANY RISK IF MY NEW PURCHASER WILL PAY DIRECTLY MY LOAN AMOUNT OUTSTANDING TO MY HOME LOAN A/C BANK ..ANY TAX DEDUCTION FROM BANK....IS THERE ANY RISK OF TAKING BIG AMOUNT CHEQUE FROM PURCHASER ?WHETHER IT SHOULD BE SPLITTED TO SMALL AMOUNTS??OR WHETHER CASH CAN BE TAKEN WITHOUT ANY RISK???PLZ LET ME KNOW URGENT..
@Manoj
CII for 2012-13 has not been declared yet, so long term gains cannot be computed for this sale as of now.
Considering CII for 2011-12, Gains would be around 2.9 lakh.
If we consider around 8% increase in CII for 2012-13, gains would be reduced to just around 1 lakh.
It would be better to get amount through cheque and same cheque number should be quoted in registered sale deed. Accepting cash has various risks, including it being labeled as black money.
Thanks a lot Pankaj. It gave me piece of mind and confirmed understanding. Also, may I assume to deposit whole 12 Lacs amount to CGS account or just the Gains amount ( as you said 4.5Lacs). Also, as per my calculation following CII rate and my buy/sale figures. The difference amount (gain) was 3.5 Lacs, so tax would be some 70K. Please clarify.
Thanks,
Pankaj
@Vijay
You will have to invest only gains part into CGAS and not full sale amount.
Income tax would be 20% of long term gains.
Pankaj,
I have some land that I purchased back in 2006 and want to sell now. Can I reinvest the money in another land or residential property to avoid LTCG tax? I have one other residence in my name. I wasn't sure if the criteria that applied to selling residential flats also applied to land. The land is in Chennai outskirts, classified as a Residential area but not under the CMDA (chennai's town planning authority).
Thanks,
@Siva
Under section 54F, you can reinvest into a residential house property to save income tax on LTCG.
In case you own more than one residential house properties at the time of land sale, you won't be eligible for section 54F exemption.
i boght agriculture land in2000 for 1 lac. then area came in to urban area.in 2012 i sold 5000 sq ft i mean half of total for 51 lacs. how i can save tax. how much is my tax liability.i have bought 2 agriculture lands 1.inmarch 2011 for 10 lacs.another in april for 10 lacs.
@Dr V Laxmi Singh
As purchase price was pretty low, almost whole of sale price would become long term gains (49-50 lakh).
This gain would be taxable at 20% rate.
To save income tax on this gains, either you can buy a residential house property or agricultural land or invest into capital gain bonds.