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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Hi Pankaj,
I had consulted you and followed your instructions after selling off my flat in June 2009..I bought another in Jan 2010. The remainder of rs 15 lakhs I put in a NHAI before 31st march 2010..therefore before the end of the financial year. The IT authorities are harassing me by asking me why I did not put it into bonds within 6 months. How could I if I had not zeroed in on the property I was going to buy and didnt know what is going to be left over to put in bonds? Could you point to me the exact section of IT code which speaks of how capital gains can be avoided by reinvesting in property and remaining money put in bonds before the financial year end so that I can quote it to them and stop this harassment ? Thank you and best wishes.
@Sid Chopra
Income tax benefit u/s 54EC is only available if investment in capital gain bonds are done within six months of sale.
Section 54/54F and 54EC are two different tax sections and one can utilize them for tax saving.
Dear Pankaj Sir,
I have one residential house in which we are living. I had booked another Flat in 2010 and home loam was taken by IDBI. Recently I had sold a plot and IDBI loan was Partly paid by LTCG amount ( taking consideration of cost of index).
1. If I want to book another flat "what will be effect on LTCG tax benefit?"
@H S Maurya
As you already owned more than one residential house properties at the time of sale of plot, you can not entitled for tax benefit u/s 54F. You need not to pay 20% income tax on LTCG with indexation computation.
Dear Batraji
As you have mentioned "you not to pay 20% incometax on LTCG with indexation computation" is not clear to me.
The second flat is under construction and excepted to be under our possession in 2013-2014. First flat is also joint name.
Kindly advice what will I do.
@H S Maurya
If you owned only one residential house property (single or jointly owned) at the time of sale of plot, then you can claim tax benefit u/s 54F. New flat possession should be taken within two years of plot sale.
But in next three years from new flat possession, total residential properties owned by you should not increase more than two.
I have sold a flat recently in July 2012 for (50Lac) which i had purchased (5L) it in year 1990. This was under my name. I had booked another flat which is under construction and would be let for possession in 2013. This booking is under my daughter's name and not mine however I am paying for entire EMI from my bank account.
The question is that would I be able to still save Tax?
@Shiseen
Generally section 54 exemption is provided if new property is in name of same person who got long term capital gains. But in past, some of the assessee have won cases in their favor in court where new property in name of their spouse or children. I would advise you to take a legal opinion from an experienced CA or lawyer.
Sir,my mother has a plot in her name and she wants to give the power of attorney in my name for sale purpose as she is abroad living for time being with my younger brother. if i will sell the plot after ataining power of attorney,what the tax i have to pay.moreover i,m unemployed.
thanks®ards
chigwell
@Chigwell
In case you receive the sale amount, you would need to pay tax on capital gains.
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%
Purchase year A would be same in which your mother bought the plot and P amount would be amount in which she bought it.
Sir
My uncle purchased a plot 25 yrs ago. From 25yrs he is the sole owner . Now he wants to sale that plot and whatever he gain from that sale amount wants to share between him and his children as their financial position is not good. he wants help his children financially. How he can do ?? IN what way?? Can he reduce his tax on capital gains.
Kindly guide him .
@Sslr
If he does not invest into new residential property or capital gain bonds, he would have to pay income tax on long term capital gains @ 20% rate.
Below is the computation for gains.
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
If his children can use gains into residential property or into capital gain bonds investment, he should first transfer property to them through gift deed and then they should sell it. In that case long term capital gains would be taxable to them and they can take tax benefit u/s 54F or 54EC.
Hi Pankaj,
My parents sold a NA plot of land in august 2012 which resulted in LTCG of Rs.15,00,000. Since the plot was jointly owned each of them now have LTCG of 7,50,000. From his share, my father bought 2 acres of agriculture land in his native place and intends to build a house on the land and use the rest for farming. The land has already been bought for Rs.5,00,000. The construction of the house will begin in May 2013 and will be completed in 8 months.
1. If he deposits the remaining 2,50,000 in a capital gains account can he claim exemption, under section 54F, on his entire LTCG (which was partly used to buy land and partly to build a house on the bought land)?
2. If my mother assists in building the house on the land, can she also claim exemption on her LTCG? To claim exemption, does the house need to be co-owned by both of them?
3. When opening a capital gains account, is it necessary to deposit the entire LTCG to claim exemption? If my mother spends 1,50,000 today, say on jewelery, and deposits 6,00,000 in capital gains account for building a house later on, how would the tax be calculated.
Regards,
Suresh Roy
@Suresh
1. Under section 54F, to save income tax fully on gains, an amount equal or more than sale consideration needs to be invested into new residential house property. So even if your father's gains portion is 7.5 lakh, he would have to deposit unused sale consideration amount into capital gain scheme account.
2. If your mother also wants to claim exemption in same property, she should be a joint owner in property.
3. Unused sale consideration amount needs to be deposited into capital gain scheme account. The used portion can only be considered if same has been spent towards advance of new residential property being bought or constructed.
Thanks for the prompt reply.
Could you please further clarify these points:
1. Can exemption be claimed if LTCG is utilised to buy agriculture land for the dual purpose of building a residential house (a farm house that would be the primary place of residence) and farming. Does "residential house property" mean land+house and can exemption be claimed if both are bought from LTCG?
3. Does this mean that my mother would be taxed 20% on 1.5 Lakh for current fiscal year and 6 Lakh in next fiscal year (depending upon how the money in the capital gains account is utilised).
Also, what is the last date before which unutilised LTCG should be deposited in a capital gains scheme account? Is it March 31 (end of fiscal year) or July 31 (due date for filing of returns)?
Regards,
Suresh Roy
@Suresh
1. Under section 54F, if you buy land and construct house on it, exemption can be taken. Land cost + house construction cost can be considered for availing tax benefit.
2. If your mother does not want to open capital gain scheme account before 31st July, she would need to pay 20% income tax on her part of gains before 31st March. She can pay tax after 31st March as well, but late tax payment penalty may be applicable u/s 234B and 234C.
In case she opens CGAS and deposit her part of unused sale consideration before 31st July, she won't have to pay any taxes now. Money has to be utilized before three years from date of sale of plot.
3. Last date for opening CGAS account would be 31st July.
Hey pankaj
My grandfather bought a property of rs. 5000. He transfered the same property on my dads name in 1961. Now we sold that property for rs 2.7 cr. Kindly tell ltcg tax and how to save it. Please reply on my mail if possible
@Mayank
Below is the computation method for LTCG and income tax:
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%
Purchase year would be considered 1981-82 here as CII concept was started from this year only. Purchase cost would be considered as fair market value in April 1981.
Income tax can be saved by investing into another residential house property u/s 54/54F or into capital gain bonds u/s 54EC
Hi Pankaj,
I heard that flats which are under construction & values less than 20 lakhs are not required to pay service tax, is it correct ?
@Akash
In case flat area is less than 2000 sq ft and value is less than 1 crore, service tax is applicable on 25% of transaction (12.36% on 25% value makes it 3.09% on total value).
Hi Mr Pankaj Batra
My dad bought a land for me under my name in 1997. he bought 4.60 grounds. He bought it for Rs 3,87,765 ( for 4.60 grounds ) and now the government value is Rs 40,00,000. I will be selling it for the same. and i will deposit the money in my account.
As iam moving abroad Iam planning to sell it this year. As iam investing this money in other country i have to submit the source of money and get it documented.
how much tax should i pay and do i have to pay any extra tax if i invest that money in other country. Iam totally moving out of the country. Please help me out with the figures.
Thank you
Have a goodday
Lokesh
@Lokesh
In case price of new property purchased by you in foreign country is more than selling price of land in India, you may not have to pay any taxes u/s 54F.
Section 54F is silent on location of new property bought so you can use it to buy property in other countries as well.
Hi Pankaj
I forgot to mention that the government value is Rs 40,00,000 per ground.
Thank you for your support
Good day
lokesh