• Plot sale with room

My uncle owns a house and is selling his plot 400 sq yards ( that he had for about 30 years ) with a room - what is the best way to invest (a house or plot or flat ) to have the least tax for the transaction and within how much time he has to do this.
Asked 6 years ago in Capital Gains Tax

The above mentioned sale of immoveable property shall be covered under the long term capital gains. To save taxes on the same, relief under section 54 of the income tax act shall be available on fulfilling the following conditions:

1. Purchase/Construction of new residential house property situated in India

2. Purchase should be done either 1 year before the sale or 2 years after the sale.

3. Construction should be completed within 3 years of the sale transaction.

4. Only ONE house property should be purchased or constructed.

5. To claim full exemption, entire capital gains should be invested.

4. If you are not able to invest the amount before the due date of tax filing, then deposit the capital gains in CAPTAL GAIN ACCOUNT SCHEME with the public sector banks.

5. Please note that the new property purchased for claiming exemption should not be sold within 3 years from the date of its purchase, otherwise the exemption will be reversed in the subsequent year.

Thanks !

Damini Agarwal
CA, Bangalore
405 Answers
31 Consultations

5.0 on 5.0

Dear Sir,

It depends upon the amount of capital gain earned by your uncle. If the amount of capital gain is covered by the plot, purchase the plot and if not purchase the house or flat. In case of purchase it is 2 years from the date of sale and in case of construction it is 3 years form the date of sale.

You need to deposit the amount of capital gain amount in capital gain deposit scheme before filing of ITR and utilize the amount from that account only.

Regards

Vivek Kumar Arora
CA, Delhi
4825 Answers
1030 Consultations

5.0 on 5.0

The sale of immoveable property and the capital gains thereon is covered under section 54 of the income tax act.

You can minimise the tax implications by either of the following:

1. Purchase of another Residential Property within 1 year before or 2 years after the due date of transfer of the Property sold and/or

2.Construction of Residential house Property within a period of 3 years from the date of transfer/sale of property

Provided that the new Residential House Property purchased or constructed is not transferred within a period of 3 years from the date of acquisition

If the new property is sold within a period of 3 years from the date of its acquisition, then, for the purpose of computing the capital gains on this transfer, the cost of acquisition of this house property shall be reduced by the amount of capital gain exempt under section 54 earlier. The capital gain arising from this transfer will always be a short term capital gain.

Capital Gains shall be exempt to the extent it is invested in the purchase and/or construction of another house i.e.

If the Capital Gains amount is equal to or less than the cost of the new house, then the entire capital gain shall be exempt

If the amount of Capital Gain is greater than the cost of the new house, then the cost of the new house shall be allowed as an exemption

Although as per Section 54, the assessee is given 2 years to purchase the house property or 3 years for the construction of the house property, but the capital gains on the transfer of the original house property is taxable in the year in which it was sold. The Income Tax Return of that year is required to be submitted in the relevant assessment year on or before the specified due date for filing the Income Tax Return. Hence, the assessee will have to take a decision for the purchase/construction of the house property till the date of furnishing of the income tax return otherwise, the capital gain would become taxable.

To avoid the above situation, the Income Tax Act specifies an alternative in the form of deposit under the Capital Gains Account Scheme.

The Amount of Capital Gain which is not utilised by the Assessee for the purchase or construction of the new house before the date of furnishing of the Income Tax Return should be deposited by him under the Capital Gains Account Scheme, before the due date of furnishing the return. The proof of such a deposit shall be attached with the Income Tax Return. In this case, the amount already utilised by the assessee for the purchase/construction of the new house shall be eligible for exemption

In case, the assessee deposits the amount in the Capital Gains Account Scheme but does not utilise the amount deposited for the purchase or construction of a residential house within the specified period, the amount not so utilised shall be charged as Capital Gains of the year in which the period of 3 years is completed from the date of sale of the Original Asset and it will be long term capital gain of that financial year.

Hope this clarifies your query.

Nikhil Khanna
CA, Mumbai
1429 Answers
19 Consultations

4.8 on 5.0

Hi

Selling a house property is always beneficial instead of land as only capital gain amount needs to be invested for claiming tax exemptions and not entire said proceeds.

Taxes have to be paid with return filing. If reinvestment in Another house property has to be done, it can be done up to 2 years; 3 years if constructed.

I assume your question is about the Indian taxation system.

Lakshita Bhandari
CA, Mumbai
5687 Answers
908 Consultations

5.0 on 5.0

He can invest in any residential house property be it house or flat. He has to invest the entire proceeds received from sale of plot in such residential property to fully exempt the capital gains, otherwise only the proportionate gains ie proportion of sale proceeds invested would be exempted. This investment can be made upto due date of filing ITR ie 31st July or he can put that amount in Capital Gains Account Scheme opened with bank and utilise that amount for purchase of house or flat upto 2 years from the date of sale.

Capital gains in this case would be calculated as the difference of sale proceeds and plot value as on 01.04.2001(after indexing).

Note: this exemption is available only if he owns not more than 1 house property on the date of sale.

Harsh Kumar Garg
CA, Panipat
26 Answers

5.0 on 5.0

Hi,

I am little confused as to whether your uncle sold a plot or a house. In any case, the best way of save capital gain tax would be to invest in another house property in India.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar
CA, Mumbai
3576 Answers
183 Consultations

4.8 on 5.0

Hi,

You have to first calculate the amount of Capital Gains tax arising out of such transaction keeping the benefits of indexation.

In order to save tax on such capital gains, you can do any of the following u/s 54 of the Income Tax Act, 1961:

1. Invest the amount of Capital Gains in acquisition of another residential property before 1 year from the date of such sale or within 2 years after the date of such sale

2. Utilize the amount of capital gains in construction of another residential property within a period of 3 years from the date of such sale.

Pending any decision on the above two factors, the assessee may utilize the amount of Capital Gains on the sale of house property by investing the same in Capital Gains Accounts Scheme before the date of filing of Income Tax Return.

Regards,

CA. Sunny Thakral

Sunny Thakral
CA, Delhi
224 Answers
8 Consultations

5.0 on 5.0

You can save tax by reinvesting in new residential property or even go for construction of new residential property.Purchase should be done 1 yr before or within 2 yrs from date of sale and if you are going for construction then should be done within a period of 3 yrs from date of sale.

Max amt of exemption will be equal to capital gain only.

As Profit Amount to be taxed in same Financial yr in which it is generated so you have decide in same yr .If reinvestment is not planned then it is advisable to deposit the same in Capital Gain Account scheme and utilize it within time mentioned above.

Swati Agrawal
CA, Mumbai
1146 Answers
7 Consultations

5.0 on 5.0

If the consideration for the sale as per the sale deed is predominately for the land and only a meagre sum for room, then it is sale of a plot. He will then be eligible for exemption u/s 54F, if the entire sale proceeds are invested in the acquisition of a new residential house. However, as he seems to have a residential house already, he will not be eligible for exemption u/s 54F.

He will be eligible for exemption for investment of Long term capital gains upto Rs 50 Lakhs in bonds issued u/s 54EC and another Rs 50 Lakhs in units issued u/s 54EE. The lock in period is 3 years but it will be increased to 5 years from 1st April 2018, as per Budget 2018. So you may try to sell and complete the investment latest by 31st March 2018,

B Vijaya Kumar
CA, Hyderabad
1001 Answers
124 Consultations

5.0 on 5.0

For having a proper Tax planning, you can avail the options available under section 54 and invest the sale proceeds in another Residential property within 2 years or you can buy RECL or NHAI bonds issued by GOI withinh 6 months from the sale of property.

Thanks,

CA Sourabh Pahuja

Sourabh Pahuja
CA, Delhi
78 Answers
1 Consultation

5.0 on 5.0

Hello,

On the basis of the information provided by you, a house looks as the most suitable option. But it will be better if you can provide the cost of acquisition, year of acquisition, vale as on 01st April 2001 and Sale Consideration to help me give you a proper solution.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, FCA, LLB, CERT. FAFP

Rohit R Sharma
CA, Mumbai
2104 Answers
95 Consultations

5.0 on 5.0

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