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.
Hi Pankaj, I have bought a piece of residential plot/land in year 2000, which I wish to sell now (in FY 2011-12). Is tax rate 10% without indexation and 20% with indexation on capital gains. I understand that after April 2012 (when DTC comes in force) it would be added to income (after indexing the cost) which would mean 30% for my case where as this year it would be 20%. Am I correct in my understanding? Regards,Sunil
@Sunil
Only indexation rule will apply here. Income tax is 20% on capital gain computed with indexation as of now.
After DTC, the whole capital gain will be added to income and taxed as per tax slab rates (max 30%).
hi, i have a query. my father has a property in goa(purchased in 1990) and a residential flat in mumbai. He wishes to sell the goa house
and purchase 2 flats in mumbai.
1) Can he claim LTCG on property of higher value?
2) If above is true at what rate, what are the tax implications for rest of the amount (at what rate it will be taxed.?
3) Can he save tax by buying a house in my mothers name or any childrens name?
4) If he sell it in FY2012..then till when he can postpone buying the new house?
5) Also can he earn any interest etc till he postpones purchase of the new house?
what is the best possible way he can save tax in a situation like this..thx for your time and appreciate your comments.
ps :i had asked this query partly earlier..but had more doubts..
@Sandeep
1. Yes, he can claim tax exemption on LTCG if he buys a new flat/residential property of value more than the gain earned.
2. Only one property needs to be bought for getting exemption. If new property price is less than gain earned then tax has to paid @ 20% on the difference amount.
3. No, tax cannot be saved if property is bought at mother or children name.
4. New property has to be bought within two years of sale or a new house has to be constructed within next three years.
5. Whole gain amount has to be invested into a capital gain account until its used for buying new house. It will earn savings bank interest on the deposit.
capital gain tax on the below amount
Date of purchase land & building on 14.06.1975 of Rs 500000 and sale of land & building on 06.05.2011 of Rs. 10000000.calculation of capital gain tax.
@Ashim
In order to calculate capital gain tax, Cost inflation index (CII) for 1975-76 and 2011-12 is required.
But CII was started from 1981-82, so you may assume a fair value at 1st April, 1981 in order to compute capital gains.
Also CII for 2011-12 has not been declared yet, so below calculation is done with CII of 2010-11 and an assumed value of 7 lakhs in 1981-82.
Purchase Year = 1981-82
Purchase Cost = 700000
Cost Inflation Index (CII) for purchase year = 100
Sale Year = 2010-11
Selling price = 10000000
CII for sale year = 711
Indexed Purchase price = 700000 x (711/100) = 4977000
Long term capital gain = 10000000 – 4977000 = 5023000
Income tax on capital gain = 5023000 x 20% = 1004600
HI Pankaj,
I bought a land in a gated community, directly from the property developers in 2004 with my savings. Subsequently I built a villa on it by taking a composite loan (land + construction). The construction got completed in Apr’07. I intend to sell the villa now due to appreciated value of the property.
My question is : How is the purchase price of a constructed property arrived, to calculate capital gain.?
@Navneet
Following computation will be used in your case:
Purchase Year of plot = A
Purchase Cost of plot = P
Cost Inflation Index (CII) for purchase year, A = X
Construction Year = C
Construction cost = T
CII for construction year, C = Z
Sale Year = B
Selling price = Q
CII for sale year, B = Y
Indexed Purchase price = P x (Y/X) + T x (Y/Z) = R
Long term capital gain = Q – R = S
Income tax on capital gain = S x 20%
Hello Pankaj,
Please find the construction details along with expenditure detail year wise.
——————————————-
1st phase of construction -1992-93-300000
2nd phase of construction -2000-2003-500000
3rd phase of construction-2005-2006-800000
—————————————————
Kindly let me know if need any further information.
Regards,
Naveen
@Naveen
Below is the calculation for long term gains:
Purchase Year = 1992-93
Purchase Cost = 232000
Cost Inflation Index (CII) for purchase year = 223
Phase 1 Construction Year = 1992-93
Phase 1 Construction Cost = 300000
Cost Inflation Index (CII) for Phase 1 Construction year = 223
Phase 2 Construction Year = 2002-03
Phase 2 Construction Cost = 500000
Cost Inflation Index (CII) for Phase 2 Construction year = 447
Phase 3 Construction Year = 2005-06
Phase 3 Construction Cost = 800000
Cost Inflation Index (CII) for Phase 3 Construction year = 497
Sale Year = 2009-10
Selling price = 2010000
CII for sale year = 632
Indexed Purchase/Construction Cost = 232000 x (632/223) + 300000 x (632/223) + 500000 x (632/447) + 800000 x (632/497) = 3231970
Long term capital gain = 2010000 – 3231970 = -1221970
There is actually a capital loss and not a gain here.
Hi Pankaj,
Thanks a lot for helping with the calculations. could you help me with another question do i have to declarae any expense document for these investements while filing the income tax .
Additionally till october 2006 the property was on my fathers name…than tranferred on my name at the same cost i.e 232000 with a stamp duty of 23000.
Regards,
Naveen
@Naveen
In the capital gain section, you will have to provide expense under expenditure on transfer section for stamp duty paid. Its under CG-OS sheet in ITR 2.
I want to know, I have sold my residential house and invest the money in booking of builder’s flat and still not get the possession and due to some sort of financial needs, I want to cancel the booking and just let me know whether the cancelation of booking amount will cost me the capital gain and the details are below
Date of sale of residential house 01/01/2009
Date of booking of builders’s flat 29/04/2009
Date of cancelation of builder’s falt 15/05/2011
Sorry vijay, I am not providing a solution. Just wondering why would you let the booking amount go. I guess you would have paid more than the booking amount. If I not mistaken, you can sell the flat to someone n get the money back.
@Vijay
Its already two years passed since you sold old residential house. To save income tax on capital gains, one must invest in another residential property within two years of sale. One can also construct a new house within three years of sale.
So either you pay income tax on capital gains now or get a house constructed on land within next 7-8 months.
Dear pankaj sir, i sold a plot 2 days back in Rs. 45 lacs and want to invest whole amount within next seven days by purchasing one new flat in ansal township after giving full down payment of 45 lacs ,but above mentioned flat will be ready for possesion and registry after 3 yrs, please tell me that if i invest whole 45 lacs with in one year by giving downpayment for flat and get possesion and registry of flat after 3 or 4 years will i be exempted from capital gain or possesion and registry should also be completed in one year time after sale, Jamshed.
@Jamshed
If you don’t get a new house before end of three years from sale of old house, exemption won’t be available on capital gains.
Hi Pankaj,
I purchased a flat in sept 1991 and planning to sell now . My quiary is on calculation of LTCG. pl clarify whether the following aspects can be consider for arriving indexed price of purchase.
1. The cost of undivided portion of the land
2. The construction cost paid by me to the builder.
3. The registration fee for the undivided portion of the land and value of court stamp paper
4. Cost of Electrical connection paid to the builder separately.
5. Cost of water and sewerage connection paid to the builder separately.
6. Cost of car garage purchased separately from the builder
Please also clarify whether i can include the following under improvement activity to arrive indexed price of purchase of flat.
1.Cost of wood work done in the flat(after construction)
2.Fitting of safety gate and grills for the balconies( done after 5 years)
3.Cost of White washing and painting done on every 5th year.
4. Cost of fixing of Modular electrical switches.(after 6 years)
5. Cost of new bore well and change of new lifts .
6. MCH Property tax paid annually.
7. Monthly maintainence charges paid to the Apt. welfare association.
8. Cost of 2 window air coolers fitted in the flat .
Regards,
N.Krishnamurthy
@N.Krishnamurthy
You can include 1,2,3 from first set, but nothing can be added from the second list.
Dear sir,
I purchased a plot in 2002 for Rs.120000 and reg. expence of Rs.13000.Now on April 2011 ,I sold it for Rs.168000/-. Kindly let me have the tax implication and the exemption i can get if I go for Rs.2000000/- worth flat.
@Parthasarthy
In order to save income tax on long term capital gains arising due to sale of plot, you can invest whole consideration amount (selling price of plot) into a residential property within 2 years of sale of plot. But you should not own more than one residential property at the time of buying new flat.
1) Can i deposit the Capital gain in any of my Savings bank accounts?
Is there any special accout required to deposit Caital Gain amount until the amount is invested in new property?
2) I am planning to construct house using Capital gain money. in this case, should I produce any bills / receipts while submitting my income tax returns to show the construction cost. Please clarify
@Sushen
1. In you want to buy another property to save tax, you will have to deposit capital gains into capital gain account in the mean time. It can be opened with any nationalized bank.
2. Income tax return does not require any documents to be attached as proofs. However while assessment, income tax department may ask for proofs of investments.
I want to know, I have sold my residential house and invest the money in booking of builder’s flat and still not get the possession and flat is under construction and due to some sort of financial needs, I want to cancel the booking and want to get back the entire booking amount of 21 lacs and just let me know whether the cancelation of booking amount will cost me the capital gain and the details are below
Date of Purchase of residential house 03/2003 worth Rs. 850000
Date of sale of residential house 01/01/2009 worth Rs. 2600000
Date of booking of builders’s flat 29/04/2009 worth Rs. 2100000
Date of cancelation of booking of flat 15/05/2011
you are kindly requested to pls guide me in this dicy situation and would be thanksful a lot.
@Vijay
As two years have already finished and you have not got possession of new house, income tax on capital gains will have to paid now.
Else you can get a house constructed before Jan 2012 to save tax.
Hi Pankaj,
I wish to sell my villa constructed by myself on a plot of land in 2009 at a total cost of 6.5L+18L (land+bldg)=24.5L and am now selling the same for 35L. I intend to keep 10L as fixed deposit to earn monthly income and use the rest i.e. 25L for building another villa on the outskirts. Can this be done (segregation into FD) right away by transferring 10L from capital gains account into FD or after the construction of new villa. How much tax will I have to pay on 10L kept in FD. Please advice.
Regards,
Rohith
@Rohith
If you sell property before three years, it will be short term capital gains. Whole gain will be added to your taxable income and will be taxed at maximum rate as per your slab.
Hi Pankaj,
I have purchased land & build house (my 1st Residentail property) on 1982-83 by investing Rs 2 Lac and same was sold in apr 2011 for Rs 65 lac. Out of sell proceeds of Rs. 65 lac I want to purchase a new residential flat of Rs 60 Lac. I have no other residential property. In such case how much capital gain tax I have to pay.
Please Advice me .
Waiting for your responce.
@Ashish
As you are buying a new flat for 60 lacs, you can get income tax exemption on long term capital gains (earned on selling earlier property). There will not be any tax payable in that case.
Thank You sir for your kind guidance and quick response.
Sir,
I had purchased a plot of 200 sq yd in August 2009 for Rs 250000/- and sold the same in July 2010 in Rs 300000/- ( gain Rs 50000/-due to change in control rate i.e from 1250/- per sq yd to 1500/- sq yds.) Further i have invested Rs 250000/- in 100 sq yd plot at same place in March 2011 pl confirm the the applicability of Capital gain tax for the same.
Regards,
@Hari Krishan
As you sold plot before three years, it will be considered short term gain. Whole gain (50000 Rs) will be added to your taxable income and taxed as per your slab rates.
HI
Actually we have 3 residential houses.Among them we sold one and we got long term capital gain.To seek exemption we purchased a land within the time limit.Is it neccessary now to pay tax on the long term gain.Please tell me what to do.
@Shaheena
In order to save income tax on capital gain, either you will have to buy a residential property or construct one on land purchased.
Exemption cannot be availed on land purchased.
I had purchased a flat in 2003 for 9 lacs.I have disposed the flat in January 2011for 20 lacs. I intend to buy a new flat for the same amount or more.I do not have any other property. Do I have to pay property tax?. What is the time limit for purchasing a new flat to save capital gains tax.? Waiting for your reply. Do I have to buy a new property within July 30th 2011 which is the last date of filing returns.
@Kariat
If you are buying a new flat for value more than the capital gain before Jan 2013, then there won’t be any income tax payable on gains.
You will have to invest the gain amount into capital gains saving scheme until this is used to buy a new property. This has to be done before income tax return filing for FY 2010-11.
Thank you Pankaj for your prompt reply. very useful info for a layman like me
Dear Mr Batra,
Input:
1. Flat “A” purchased in Dec 1985, in the name of KKG ( Self- single name).
2. House “B” purchased in June 2004, in the name of GG (spouse –single name).
3. Flat “C” under construction, agreement date May 2011, possession /registration likely in Dec, 2015.
4. I Understand that LTCG arising from sale of residential house is exempt if the original asset is held for more than three years and a new house
was purchased within one year before or two years after the sale of original asset, OR A new residential house is “ constructed” within three years.
Question:
1. Definition of “construction” is not fully understood, Since builder is constructing apartment “C”, will it come under the definition of “constructed”
? What happens if construction of “C” is commenced before sale of “A” and “B” but delayed beyond 3 years of sale? Is construction to be started within 3 years OR completed within 3 years? Can construction start before sale?
2. Can we avail LTCG by selling Flat “A” and House “B” and investing entire amount in “D”? Keeping in view ownership combinations are different but between spouse ( KKG and GG)?
3. I understand LTCG tax is 20% if cost index is considered. If cost index is not considered is there different tax rate applicable?
4. Assuming in a sale net LTCG is 10 lakh, applicable tax @ 20% is 2 lakh, no other income from any source. Will the assesses has to pays 2 laky? Or benifit of any initial slab (say 1.6 lakh) is deductible/applicable?
5. If the entire sale proceeds invested in specified infra bond for stipulated 3 years, on maturity of bonds, what is the tax implications on interest earned? Are they taxable? Are these bonds available throughout the year?
With best regards
KK Gupta
@KK Gupta
1. Construction by builder where you are buying flat and not constructing yourself will not be considered under definition of “constructed”
You must get possession of flat between one year before sale of old flat or two years after sale.
2. Yes, you can sell A and B and buy D so save income tax. New property D should be in joint names of KKG and GG and their share value should be more than capital gains earned individually from selling A and B.
3. For assets like property, only indexation computation is allowed.
4. If assessee has no other income then there won’t be any tax on initial 1.6 lakhs.
5. Interest earned from capital gain bonds will be added to income of persons and will be taxed as per his/her slab rates. Capital gain bonds scheme keep opening from time to time, you will have to track them.
In reply to K.K.Gupta in2 you have stated that capital gains accrued by selling properties A and B he can buy a property D. I request you to clarify whether both the capital gains can be clubbed if it is sold in different financial years
@Vasudeva Rao
There is a 2-3 years period in which new property has to be bought, so if two gains falls in this period, they can be combined to avail tax benefit.
Dear Pankaj,
We have purchased a property in banglore with my mother in law and my mother has 50-50 ownership .we have purchased it in 2010 .Now we have decided to take the whole property by registeration in our name…We have already registerd the property in the same 50/50 share ..Will this new purchase will there be TAX on capital Gain ..Pls reply and thanks for ur help
@Thanzil
As property is transferred in relation, there won’t be any capital gain on it and hence no income tax.
Pankaj,
Thanks for helping people like me in answering their queries. The question I have is if I sell my residential house, can I buy just one property with it or more than one? Also, if the sold property is in my name then can I buy new property jointly with my wife (all contribution will be made by me) ?
How will calculate gains be calculated if a plot which I bought in 1977 @Rs. 30,000 and spent money in construction over the years (approx. 20 lakhs) is now being sold for 2.25 crores ? Would I have to buy property of whole 2.25 crores now?
Please advice.
Regards,
@Tushar
In order to save income tax on capital gains, you will have to invest in only a single property. The new property can be on joint name but your share value should be more than capital gains in order to save tax fully.
Calculation like below will have to be done to compute capital gains. Only capital gains will have to be invested to save income tax and not the full selling price.
Purchase Year = 1992-93
Purchase Cost = 400000
Cost Inflation Index (CII) for purchase year = 223
Phase 1 Construction Year = 2004-05
Phase 1 Construction Cost = 1300000
Cost Inflation Index (CII) for Phase 1 Construction year = 480
Phase 2 Construction Year = 2002-03
Phase 2 Construction Cost = 0
Cost Inflation Index (CII) for Phase 2 Construction year = 447
Phase 3 Construction Year = 2005-06
Phase 3 Construction Cost = 0
Cost Inflation Index (CII) for Phase 3 Construction year = 497
Sale Year = 2010-11
Selling price = 15000000
CII for sale year = 711
Indexed Purchase/Construction Cost = 400000 x (711/223) + 1300000 x (711/480) + 0 x (711/447) + 0 x (711/497) = 3200961
Long term capital gain = 15000000 – 3200961 = 11799039
Income tax on capital gain = 11799039 x 20% = 2359807.8
Pankaj,
Thanks a lot for your response. Would I need to do the calculations with year 1977 or would 1992 calculation hold good? I am a bit confused about that part.
Thanks,
Tushar
@Tushar
This was just an example.
You will have to do same from 1977. CII (Cost inflation index) was started from 1981-82 so you will have to assume a fair market value as on 1st April, 1981 and compute from there.
I purchased an independant house in Aug 1999 for Rs 6,90,000 with stampduty and rgn charges of Rs 83,646. I paid Rs 10,000/- to the property broker. I spent Rs Rs 37,000/- for repairs in Oct 1999.
In June 2010 I sold half of it for Rs 12,25,000 and gifted the other half to my elder brother for love and affection. I paid Rs 20,000 to the realestate broker in this transaction.
I purchased a flat in July 2010 for Rs 16,92,000 for which I paid Rs 5,12,000 from the above sale proceeds and Rs 11,80,000 by raising Loan from LICHFL.I have also paid stamp duty etc of Rs 1,26,000/-.
Pl clarify
1. Whether any notional value will be taken for the gift i made to my brother
2. Whether brockerage and repairs incurred on the earlier house and the flat will be taken into consideration while arriving at the capital gain .
3.Can u pl give the caliculation of LTCG in my case
@K J Rao
1. Gift deed can be done to transfer property in relation. There is no need to show notional value for that.
2. Brokerage cannot be considered but repair/re-construction cost be added to cost of flat.
3. Please find below computation of capital gains:
Purchase Year = 1999-00
Purchase Cost = 405323 (computed from (690000+83646+37000)/2)
Cost Inflation Index (CII) for purchase year = 389
Sale Year = 2010-11
Selling price = 1225000
CII for sale year = 711
Indexed Purchase price = 405323 x (711/389) = 740835
Long term capital gain = 1225000 – 740835 = 484165
Income tax on capital gain = 484165 x 20% = 96833
I, an NRI, had purchased a land property in 1994 @ Rs. 40,000/-, spent in tax and converson for Rs. 1,40,000/- and sold it in 2011 @ Rs. 18,00,000/-. How much I have to pay Income Tax? If I want complete Tax Exemption, how much amout of property I have to buy?
Dipu
@Dipu
Please find below capital gains computation:
Purchase Year = 1994-95
Purchase Cost = 180000
Cost Inflation Index (CII) for purchase year = 259
Sale Year = 2010-11
Selling price = 1800000
CII for sale year = 711
Indexed Purchase price = 180000 x (711/259) = 494131
Long term capital gain = 1800000 – 494131 = 1305869
Income tax on capital gain = 1305869 x 20% = 261173.8
To save tax fully, you will have to invest whole sale proceeds (18 lacs) into new residential property as you sold a land property and not a house.