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:
- If the cost of the new asset is more than the net consideration received in respect of the original asset, the whole of such capital gain shall not be charged to capital gain tax as per section 45 of the Income Tax Act.
- If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears the cost of the new capital asset shall not be charged to capital gain tax as per section 45 of the Income Tax Act.
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 the assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset.
- If the assessee purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset
- If the assessee constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.
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.
I have purchased one Flat on Feb 2008 and below is the details
Property Cost =1286000
Registration Fee = 105000
Now I wish you sell by property and projected value would be 2100000
Please let me know what will be the tax on LTCG.
@HazaikaRK
Long term capital gains computation:
Purchase Year = 2008-09, Purchase Cost = 1391000, Cost Inflation Index (CII) for purchase year = 582
Sale Year = 2010-11, Selling price = 2100000, CII for sale year = 711
Indexed Purchase price = 1391000 x (711/582) = 1699314
Long term capital gain = 2100000 – 1699314 = 400686
Income tax on capital gain = 400686 x 20% = 80137.2
Dear sir,
Myself and wife bought residential plot measuring around two and half grounds , whereas , the same was registered separately. viz one half of the plot was registered in my name and other half of the plot was registered jointly in the name my wife (1st person) and myself. The total cost of the each plot was Rs.1,20,000/ and bought in 1992. Presently I am owning one self occupied residential house, registered in my name jointly with my wife. Likewise my wife owns one residential house exclusively registered in her name .
Now We would like to sell the plot registered separately , which can fetch around Rs.75 lacs each. Would appreciate to get your advise on avoiding capital gain tax, so as to take care of our present retired life.
Thanks in advance
LakshmiNarayanan
@R.Lakshminayanan
You can save income tax arising from capital gains from sale of plot under section 54F and 54EC.
Under 54F, you can buy another residential property from the money received from sale of plot. But there is condition attached to it that you should not own more than one property at the time of buying new property (for exemption).
As you and your wife both, already own 3 properties, even if you buy new property income tax exemption cannot be availed.
But to minimize tax outgo, you can take one option. Sell jointly owned plot first and pay income tax on capital gains earned (individually on your share, it will come around 7 lacs each). Then sell second plot which is owned only by you and buy another property atleast of 75 lacs.
Under 54EC, you can invest into capital gain bonds to save income tax. Max 50 lacs can be invested into these bonds in a financial year.
Dear sir,
Thank you very much for the speedy reply. I think I did explain the issue properly for your understanding. As such , we ( my self and my wife) do not own 3 residential properties. We own only two. viz., viz., one residence jointly held by us, and 2nd house exclusively owned by my wife ( Who is a working women, having separate PAN ) bought very recently.
In view this , if we sell the two plots situated side by side..1st plot… registered in my name and 2nd plot registered jointly in my wife name and in my name,
I need following clarification:-
1. can we still avail tax exemption under section 54F.,
2. If not, how to apportion the cost of plot jointly held by us between us , so as to arrive the capital gain, to pay the tax.
Hope I have explained the situation better.
Thanks in advance
@Lakshminarayanan
Sorry for the confusion.
You can avail exemption under 54F when you sell plots and buy a new residential house.
But in case of your wife, she owns two residential properties as of now (one jointly and one single owned), So she cannot get exemption on her part u/s 54F.
In your case, To make income tax nil, On selling two plots, buy a new flat/house with value greater than or equal to 75+37.5 lacs. You will have to buy single property only.
This has been assumed with case that you and your wife both own equal portion in a plot.
Your wife can deposit her 37.5 lacs into capital gain bonds and claim exemption under 54EC.
Dear Sir, Thank you very much for the clarification . I need your advice on the following:
As you advised, If I want to avail exemption from from Sec.54F, I need to invest in the new residential property amounting to 75lacs + 37.5 lacs with in two years from the date of sale of plot. Suppose after having deposited into capital gain tax bank account, if the cost of the new property is less than Rs.75lacs + 37.5lacs, can I deposit the balance amount in capital gain bond to avail the total exemption under Sec .54F.
Thanks in advance for your advice.
@R. Lakshminarayanan
Under section 54EC, capital gain bonds have to be purchased within six months of transaction (which resulted into capital gains).
So in case you are not able to use full amount to buy new property, You will have to pay income tax on remaining capital gains amount.
Hi Pankaj,
Just came across this post and must say that this is extremely informative and a great help for us first timers. However I have a quick question.
My father is selling his flat bought in 1977 and we would like to buy two flats from this sale. i.e. 1 for my parents and 1 for my wife and myself. They are looking to relocate to a quieter area of New Mumbai while I will be looking to stay within city limits for my job.
Can we buy two properties from the sale of one. While the flat’s share certificate is in my father’s name only. We have a stamp paper from 1983 where he allocates 50% of the property to me. Can you please help?
@Manish
In order to save income tax arising due to capital gain from sale of old flat, your father will have to invest the capital gains amount into another residential property (read, it can only be invested to a single property).
In order to save tax fully, Your father can buy two properties but one of them should have buying price more than the capital gain (gain should be calculated with indexation computation).
Otherwise also, you can claim exemption against the new flat with higher price and pay income tax on only remaining amount (capital gains – price of new flat).
Hi sir,my husband has an HUF house where we reside and has another flat which he bought in 1990 for 6 lakhs and if he sells it today it would be 70 lakhs. He is also a 25 % owner in another house with me, my name first and another partner bought in Feb 2008. Now if he sells the 70 lakh flat and uses the capital gain amount to buy another house does he qualify for the exemption ? Or else if he buys the other other partner of the house bought in 2008 with the money 70 lakhs, will he qualify for the capital gain tax exemption for that. Which option would be better ? Another query is, if he buys the house one of the above first and sells the 70 lakh flat later as it is on lease for another 8 months, can he still get the exemption. I read your valuable comments and am hoping to get the right answers. Many thanks. neens
@Neena
Yes, income tax exemption will be available if he sells flat and buy another one from the capital gains amount. Exemption will also be available if he buys part of house from any other partner.
Income tax exemption is available if new property is bought within time period of one year before transfer and two years after transfer of old property. So new one can be bought first and old one sold within one year.
To clarify it one more time, if he buys the partner out and we owe the full house bought in 2008, will he get the capital gain tax exemption. Can he buys the house first and sells the flat after 8-9 months and still get the long term capital gain tax exempt. Hope it makes sense !!
I PURCHASE A COMMERCIAL PROPERT IN 1985 FOR 428000, I AM SELLING THE PROPETY IN APRIL 2011 FOR 30 LAKHS AND COMISSION FOR THE DEAL IS 50000 LET ME KNOW THE CAPITAL
@Rafeeq
Capital gain computation:
Purchase Year = 1985-86, Purchase Cost = 428000, Cost Inflation Index (CII) for purchase year = 259
Sale Year = 2010-11, Selling price = 3000000, CII for sale year = 711 [ Note that, CII is taken for 2010-11 as CII for 2011-12 has not been declared yet, please re-compute with 2011-12 CII number once that is out]
Indexed Purchase price = 428000 x (711/259) = 1174934
Long term capital gain = 3000000 – 1174934 = 1825066
Income tax on capital gain = 1825066 x 20% = 365013.2
purchased Residential property for Rs.2.25 lakhs in 1989 i wish to sell the propety in june 2011 whait is the capital gain i am not going invest the amount in any propety.
@Chand
Capital gains and income tax can be computed only when selling price and year is available.
Hi Pankaj,
MY Father has sold the flat. I am taking some part of it and going to buy a property. What should be done so that he gets tax exemption for the money which he is giving to me to buy the property. Do we need to include his name on the registration. What are teh documents that will prove that he has invested in buying a property.
@Vij
As your father has sold the property, all tax liability for income tax is his, on capital gains earned on transaction.
After he has paid tax or bought another property to save tax, he is free to give money to you to buy property at your name.
If for saving tax, you want to claim amount paid towards new property, your father must have ownership is new property (partial or fully). To save income tax fully, cost of his portion of new property must be more than capital gains earned by selling old flat.
Regarding proof, new house must have registration documents with his name mentioned as an owner.
I have purchased one Flat on 23rd Feb 2008 on bank loan and below is the details
Property Cost = Rs.1393000
Remaining Bank loan : Rs.1050000 ( Principle)
Now I wish you sell by property on April 2011 and projected value would be 2100000
Please let me know what will be the tax on LTCG.
@Hazarika
Income tax will be computed as per indexation rules, as per below:
Purchase Year = 2007-08, Purchase Cost = 1393000, Cost Inflation Index (CII) for purchase year = 551
Sale Year = 2010-11, Selling price = 2100000, CII for sale year = 711
Indexed Purchase price = 1393000 x (711/551) = 1797501
Long term capital gain = 2100000 – 1797501 = 302499
Income tax on capital gain = 302499 x 20% = 60499.8
Your income tax liability will be less than calculated above as it will have to be computed once CII (Cost inflation index) for 2011-12 is declared.
Above calculations are only suggestive with assuming that flat is sold in March 2011.
Hi Pankaj, I am a Senior Citizen.
I bought a plot of land ( called A) 12 years back and sold it in Feb 2011. Capital Gains amount is approx 40 Lacs .Tax on LTCG is approx 8 Lacs.
To save tax, If I invest the 40Lacs in a under construction flat ( called B) and the builder does not give possession till Feb 2014 , how will the LTCG on A be treated?
If I get possesssion of Flat B in Jan 2014 and sell it in 1 year ( Jan 2015) , does it impact the tax benefit I received on Plot A.
@Vik
1. If possession is not received of the new under construction flat even after three year completion of land sale, then income tax exemption cannot be taken.
2. Under section 54F, To save income tax on capital gains arising due to sale of plot/land, whole sale amount has to be invested again and not only the capital gains amount.
3. Exemption under 54F cannot be taken in case you already own more than one properties at the time of buying Flat B. And also no more property must be bought in next three years other than flat B.
4. There won’t be any impact of tax benefit if new property is sold in a year, but the gains on this sale will be short term gain and income tax will have be paid on this.
Hello Pankaj,
Greetings!
I am in need of a quick solution and need your help in this regard.
My Father bought a land when he retired in 2002 at a price of Rs. 60,000 and has sold it in Jan 2011 for a price of 7,50,000.
To avoid the capital gain tax, he wants to invest the amount in purchasing another property in Bangalore. In this process, he almost finalized a property and later had to let it go as it somehow didn’t fit the budget. He now holds the cash with him and still wants either to invest in another purchase of property or as you mentioned above, invest in Capital Gains Scheme of Deposit Account in one of the banks.
However, having said that, he now faces an issue with the income tax that he’s filing before 31st March. The CA has now asked him to pay a flat tax of around 1.5 lac which i feel, is a little absurd. The reason i say so is because its been just 2-3 months from the date of the sale and we get 6 months either to invest that amount in Capital Gains Scheme of Deposit Account, or to buy another property. He’s in the process of filing tax for the financial year 2010-2011.
Can you please suggest me on how we can go about solving this issue? We are not interested in paying this tax right now as We seriously would like to invest in a purchase of a property in the next 6 months. If we aren’t able to do so before the end of 6 months from the date of sale, he would invest the same in one of the options you’ve mentioned in the list above.
Please respond to this ASAP as its a little urgent.
Sincere thanks to you in advance.
Rohan.
@Rohan
Computation of income tax:
Purchase Year = 2002-03, Purchase Cost = 60000, Cost Inflation Index (CII) for purchase year = 447
Sale Year = 2010-11, Selling price = 750000, CII for sale year = 711
Indexed Purchase price = 60000 x (711/447) = 95436
Long term capital gain = 750000 – 95436 = 654564
Income tax on capital gain = 654564 x 20% = 130912.8
Now in order to save income tax on this gain, there are two ways:
1. Section 54F: Buy another residential property of value >= 7.5 L within 2 years of sale of plot or get a house constructed within 3 years of sale.
2. Section 54EC: Invest into capital gain bonds within 6 months of sale of plot.
In first case, if property is not bought before last date of return filing (31st July, 2011) of the financial year (2010-11) in which sale was done, the gain amount has to be deposited into a capital gain scheme deposit account. Money can be kept in this account for next 3 years.
Pankaj — Can you clarify Satish’s last question in mail thread:
http://www.caclubindia.com/forum/timeline-fior-longterm-capital-gains-tax-on-house-45334.asp
I have similar query and he has explained my situation.
Sachin (from Tribal fusion)
Hi Pankaj,
We own two flats and will be selling a vacant land property. The second flat has been bought recently and the EMI will begin only on April 26th 2011. The registration of the land property is on April 13th. Please advise if we can utilize the Capital gain from the land property to pay towards the second flat in order to avoid the tax on the Long Term Capital gain. Thanks.
@Divya
Under section 54F, if you buy a new house from sale of old land property (between time frame of before one year of sale and two years after) and don’t own more than one house at this time, income tax exemption will be applicable.
Hi Pankaj,sold a res property in february 2011. have purchased an apartment in March 2011. Paying installments to the builder (uptill 2013). When do i file my income tax for capital gain? i.e. July 2011 or July 2012? Should I invest the amount in Capital Gain Account Scheme before July 2011 or July 201? Would be helpful if you could reply.Thanks
@Sunny
You will have to file income tax return before 31st July, 2011.
And capital gains have to invested into Capital Gain account scheme before filing return.
What happens if the property sold is agricultural land? Can I still save tax in the above mentioned way? Where do I keep the sale proceeds of the land during the period in which I construct a house?
@S.M.Gupta
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. In the above case, there won’t be any income tax liability on sale of land.
But if land falls under urban area, long term capital gain will apply here and a 20% income tax is payable on capital gains with indexation calculations.
You can still save income tax on this sale under section 54F, 54B or 54EC.
You will have to keep capital gains into Capital Gain account scheme.
Dear Pankaj,
I had bought a flat on Jan 2010 n wish to sell it this year. The price at which i had bought was at 17lacs (flat cost) + 1.5lacs (registration cost). I intend to sell it at 31lacs, hence can u please let me know the tax that i would need to pay.
@Sanober
As you are selling plot before three years, it will be considered as short term capital gain.
Gain amount in your case will be 31-18.5= 12.5 lacs.
This gain amount will be added to your taxable salary and will be taxed as per your tax slab (most of it will be taxed at 30% rate).
Hi Pankaj,
Very Insightful and Useful Info on this post.
My facts:
Me frm Mumbai
Got House 1 : in mine and Spouse name (2008)
Got House 2 : in mine and Spouse name (2010 May)
Got House 3 : in mine and Mothers name (2010 Sept)
Looking to dispose House 3 : and acquire NEW House 4 :
Numbers : House 3 is 27 Lacs Agreement Value and House 4 is 50 Lacs
Fund : Both r frm owned Funds House 3 as well as House 4
Question : STCG how to reduce or save as house 4 is a logical progression in investment holding
@Sid
As House 3 is being sold before completion of three years, gains on it will be considered as short term capital gains.
There is no-way to save income tax arising on this gain. Whole of this gain will be added to your and your mother’s taxable income (in same proportion as ownership) and taxed at your slab rates.
dear sir, kindly advise. i bought plot in indore in 2009 june for 1000000 if i sell it today i get 1600000. can i buy another plot with this amt without paying tax or do i have to pay taxes. if i have to pay taxes what is the amt. thank u. madhu
@Madhu
If you sell your plot before June 2012, it will be considered Short term gain and whole gain will be added to your taxable income and will be taxed as per slab rates.
Around 6 lakhs will be added to your year’s income.
Hi Pankaj,
I bought a residential apartment in 2004 for 9.5L (including stamp duty and rego). I moved overseas in 2007 and now an NRI. I am planning to sell my flat for 42L.
Do I have to pay any tax on LTCG even when I am not a Indian citizen now? If yes, how much?
@Raj Singh
You will have to pay income tax on capital gain even if you are not a Indian citizen.
Please find computation of income tax arising on capital gain. Please note that sale year has been considered as 2010-11 as Cost inflation index (CII) has not been notified yet for 2011-12. Actual gain for 2011-12 will be somewhat less than what is computed below.
Purchase Year = 2004-05
Purchase Cost = 950000
Cost Inflation Index (CII) for purchase year = 480
Sale Year = 2010-11
Selling price = 4200000
CII for sale year = 711
Indexed Purchase price = 950000 x (711/480) = 1407188
Long term capital gain = 4200000 – 1407188 = 2792812
Income tax on capital gain = 2792812 x 20% = 558562.4
Hi Pankaj
I have sold a plot for 28 lakhs and now to save long term capital gain I am investing the whole amount(as it a plot) in buying a flat . But the flat which I hae brought is in CLP plan so until july 31 I would pay 20 lakhs to he builder . Rest 8 lakhs has to be paid as per construction . I have not opened any captial gain account so can I pay the remaining money to builder @ construction . Also In that case hope to capital gain is imposed on me .
@Nitin
If whole consideration amount is not used before filing return, then a capital gain account will have to be opened and payment to the builder will have to be paid from that account.
Hello Pankaj,
My father purchased a residential (semi finished ) property at a cost of 2.32 Lac in 92 on loan from his office died in 2000.Till Dec-2006 property was on his name after that it was transferred on my name on the same price 2.32Lac. And 35 th expended on stamps fee and all. than in June-2009 sold it for 2010000.Was having LAP against this house of 8 lac’s,which is cleared from this amount.During 92-2006 invested around 10 lac’s in construction as it was semi-constructed (having only ground floor)
total area was 133 SQ.M current rate is 9000/sqm
How to calculate LTCG on this.Please guide me..
Regards,
Naveen
@Naveen
For calculating capital gain and income tax, further construction cost and years is also needed.
Hello Pankaj,
Please find the construction
1st phase of construction -1992-93
2nd phase of construction -2000-2003
3rd phase of construction-2005-2006
Regards,
Naveen
—————
Pankaj Batra says
@Naveen
For calculating capital gain and income tax, further construction cost and years is also needed.
@Naveen
Along with year of construction, please also provide the amount spent in these years.