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 am a Senior Citizen.
I bought a plot of land 14 years back and sold it in Jan 2011. Capital Gains amount is approx 35 Lacs .I own one residential flat already in my name. What options do I have to save the tax of approx Rs.7 Lacs. Can I invest only in bonds or can I invest in a residential property as well?
@Vik
Under section 54F, You can buy another residential property for 35 lacs, in order to save full income tax. This has to be bought within 2 years of sale of plot. Also a new house may be constructed within 3 years from sale of plot.
Under section 54EC, you can also save income tax by investing these 35 lacs in capital gains bonds within 6 months of sale issued by Rural Electrification Corporation, National Highways Authority of India and National Bank of Agricultural and Rural Development.
Hello Pankaj
I bought a plot in 1987. But I did not show in IT return then as the value was quite low.
Can I show the purchase of the plot in my IT this year. What is to be done for that.
I am constructing residence cum commercial building else where. Is it ok to show the proceeds of the sale of the plot for the construction of the residence cum commercial building and claim CG exemption.
In case the vacant property prior to construction is to be divided between my wife and children. which is better by making a GIFT or SETTLEMENT. What is the proceedure and which is cost effective.
what is the proceedure for doing the gift or settlement for NRI children and Pan card required for the NRI children
@Jaya
There is no need to show purchase of the plot now.
Under section 54F, you can avoid income tax (arising due to long term capital gains on sale of plot) by investing the sale proceeds into a residential property. In case you are constructing residence cum commercial building, only residential part cost can be considered.
In case you want to gift property to your wife and children, you can get a family settlement deed done. Stamp duty is less in case of family settlement deed as compared to gift deed. But settlement deed can only be executed between the blood relation and Gift Deed may be executed in any one favor.
Not sure about whether PAN card is required or not for children.
I sold residential plot on 23.9.2010. I want to buy a flat being sold by a person. Can I buy a second hand flat ? Can I wait upto 23.9.2012 or 23.9.2013 for the purchase?
I kept the money in a bank SB account. The date of my return filing (salaried persopn) is 31.7.2011. Hence in case I can not purchase by 31.7.2011, can I shift this amount to CGAS 1988 of SBI before 31.7.2011 or before 23.3.2011 (6 months of sale) ?
Can I freely pay the amount to the builder from CGAS or IT AO permission is required for each payment ?
How to close the CGAS account ?
Pl. enlighten.
Prasad, Hyderabad
@Prasad
I am assuming that residential plot sold by you have been kept for atleast 3 years.
To save income tax on long term capital gain (arising due to sale of residential plot), section 54F and 54EC may apply.
Under section 54F, You can buy another residential property between the time frame of one year before sale and after two year of sale. A house may also be constructed within 3 years of sale.
Yes, you can buy a second hand flat too but flat will need to be purchased before 23.9.2012. Or if you are getting a house constructed, that must complete before 23.9.2013.
If gain amount in not used for purchase of another property before the due date of income tax return filing, then the balance unused amount should be deposited in capital gain account scheme in bank. So you may deposit it before 31.7.2011.
Yes, you can pay builder from the CGAS account. AO permission is only required for closure of account and a letter (Form G) is required.
Hi Pankaj,
My Dad and I jointly own an apartment which we purchased at 29 lakhs. The sale agreement with the builder was made in May 2007 (when we paid the amount of 29 lakhs); however the registration and khata certificate was done in April 2009. Which date counts as "purchase" of the apartment?
Also, we now intend to sell this house in which we are currently staying (hopefully for 50 lakhs) and buy another house which will surely cost more than the sale price of the current house (probably 65 lakhs). Assuming the sale of current house happens this May 2011, will our earnings be counted as STCG or LTCG?
As per section 54F, can I avoid paying tax on this since we would be buying a new house in place of the current house? If so, within how much time should we buy the new house? Our new house also would be an apartment; we have no plans of building a house on a piece of land.
Last of all, if we do not manage to buy an apartment within the stipulated time, is there any other mechanism to avoid tax. I read about national highway bonds etc. but not too clear on them.
Looking forward to your reply!
Regards
Galahad
@Galahad
For computation of long term gains, you may consider agreement date as purchase date.
On considering May 2007 as purchase date, already 3 years have passed so sale of house now will be considered as long term capital gain.
To save income tax on gain, Under section 54, you can buy another residential property for amount equal or more than capital gain. But new flat must be bought within next two years of sale.
If you don't wish to buy flat, Under section 54EC, you may invest into capital gain bonds issued by Rural Electrification Corporation, National Highways Authority of India and National Bank of Agricultural and Rural Development, within 6 months of sale.
Sir, I have sold the residential property for Rs.20,00,000/- and my capital gain is worked out to be Rs.10.00 lacs. As I am not able to purchase the new property, I invested the whole amount of Rs.10.00 lacs in bank under Capital Gain Account for 5 years. Now my query is>
1. What is the position of Rs.15.00 lacs after completion of 5 years. Should I again invest to capital gain account to save capital gain tax.
2. Should I use the amount freely after 5 years.
@Praveen
In case you are not willing to buy a new property, you should Invest in capital gains bonds within 6 months of sale (Section 54 EC of the Income Tax Act) issued by Rural Electrification Corporation, National Highways Authority of India and National Bank of Agricultural and Rural Development. This is the only way you will able to save tax.
In case you invested into Capital Gains Scheme of Deposit Account, that won't save tax. This account is for keeping the capital gain amount temporarily until a new house is bought. In case you are not decided about buying new property now but intend to buy one later and still want a deduction on the tax on your capital gain, you must invest whole amount in Capital Gains Scheme of Deposit Account, which can be opened in any public sector bank branch. But if this amount is not used for buying new house within three years, tax on long term capital gain have to be paid.
Hi Pankaj,
My late father had bought a plot on 1989 for Rs.101292. He passed away in 2002 and the plot was transferred to mine and my mother's name in 2003.We should the plot in March 2010 for 10,10,500.
Q.1. We deposited the money in a joint savings a/c. What are mine and my mother's tax liability?
Can you please advise!
Thanks,
Nitish
@Nitish
Purchase Year = 1989-90, Purchase Cost = 101292, Cost Inflation index (CII) for purchase year = 172
Sale Year = 2010-11, Selling price = 1010500, CII for sale year = 711
Indexed Purchase price = 101292*(711/172) = 418713
Long term capital gain = 1010500-418713 = 591787
Income tax on capital gain = 591787*20% = 118357.4
Income tax and capital gains will have to divided among all owners in same proportion as property is.
Sir, I bought a plot on my name in 1999 and now I have planned to sell the same. I wants to buy another plot and construct a house also with in one year. My queries are
Q1. I am planning to buy the new plot but on my wifes name , will this attract Long term capital gain or not. or it should be on my name only ?
Q2. The money I will be receiving should be taken in cash or through bank. If through bank can that be kept in saving or some other account (I will buy new plot with in 15 days of selling old plot) .
Q3. If I buy new plot and construct with in one year, do I have to fill any type of IT documents/ forms.
I shall be great full to have the answers
@Sushil
1. In case you want to save income tax on capital gains, you should be owner of new house (fully or partial). You can become joint owner with your wife for new house. But your share cost must be more than selling price of old plot, in order to make income tax zero.
2. As you are buying a new plot within 15 days, you can keep amount in any bank account.
3. To save income tax arising due to sale of old plot, a new house must be constructed within three years of sale of old plot. There is no extra IT documents needs to be filled.
Hi , Pankaj
We are willing to sell one of our residential property ....
we just wanted to know that the Long term capital gain amount can only be invested in another residential or even LTCG amt can be invested in commercial property also
thanks and regards
@ABN
To save income tax arising from capital gains, investments has to be made only in residential property (Section 54 and 54F( or capital gain bonds (section 54EC).
Hi Pankaj,
A relative of mine has sold a piece of land in year 2010-11 which was purchased in 1995-6. But they also spent some amount in upgradation of their existing house in this year(2010-11). My question is that is it possible to write off the amount spent on upgrading existing house against capital gains from sale of land?
Thanks.
@PJ
To save income tax on capital gains arising from sale of a plot, a new house must be constructed withing three years of sale, or a new flat to be bought within two years, or all sale proceeds to be invested into capital gain bonds.
Renovation is existing house cannot be considered for same.
Dear Pankaj,
I have sold one of my flat and got it regd. in June 2010. Should the amount be invested in Capital Gains account (savings bank in nationalised bank) before 31st march to avoid tax or should I have to buy a property before 31st March 2011.
This is my second flat which was purchased six years ago. I am currently staying in my own flat in a city.
(1) please clarify whether the amount should be invested before 31st March.
(2) whether it can be kept invested in mutual funds?
(3) whether bank account should be opened and money to be transferred before 31st March 2011.
@Kanth
You can buy property within two years after the sale of old flat.
In the meantime, you should invest capital gains into Capital gains savings account before filing of income tax return (before 31st July, 2011)