LTCG/STCG on resale of property

If you are not able to construct the house within 3 years and transfer the plot then in that case if you are selling property after 2 years of purchase then it will be short term capital gain otherwise it will be long term capital gain and in that case if the cost of new asset was more than capital gain then the cost of new asset for calculating capital gain would be cost less capital gain claimed as exemption and then the capital gain will be calculated.

In second scenario there is use of transferring the land to wife as you will be considered the deemed owner but if you transfer it to your mother as a gift then her cost would be the cost to previous owner as per section 49(1) as in her case also capital gain will be calculated as mentioned above. The only benefit you can get here is the slab benefit available with your mother. So both the case are same and if you are going to invest in new house may be you can claim exemption u/s 54F as now you are transferring land and in that case you need to invest entire sale consideration and not only the capital gain to claim exemption.

It will attract litigation so just be careful and plan everything properly.

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Hello,

Answering your query pointwise.

1. In this case, you are selling the residential plot within 3 years from the date of purchase. That means you are violating one of the conditions of Sec. 54, i.e. selling the property within the lock-in period of 3 years. Now, as a result, you will be liable for STCG. And while calculating the STCG, Cost of Acquisition of the residential plot(i.e. Rs. 70 Lakhs + Registration charges) will be reduced by the exemption earlier granted. This will lead to increased STCG.

Now you asked about how to avoid STCG. You can't avoid this STCG but you can reduce it. If you sell it after the lock-in period of 3 years. Because this way, the cost of acquisition will be considered to be full Rs. 70 Lakhs and you can also claim an exemption under Sec. 54F  as it will be considered as LTCG.

2. The option that you have given in this case, it can be beneficial but would be subject to litigation. Because if you transfer it to your wife/mother, you are still transferring the property within 3 years and the exemption allowed earlier would still become taxable.

But If you transfer the residential plot to your wife or mother without consideration(Gift) or with consideration, the benefit would be that when your wife/mother sales the property it will be LTCG in their hands and then you will be able to claim an exemption under Sec. 54F. 

I hope this answer satisfies your requirement.

Regards,

CA Hunny Badlani

1. There will be a STCG in this case. While computing STCG, amount of exemption allowed earlier would be deducted from the cost of the plot. Not possible to avoid it because you are holding plot and not flat so that you can hold it for three years and sell it thereafter.

2. In your hand position will remain the same as discussed above.

Dear Sir,

Hope you are doing well !!

-Yes, there will be STCG tax liability. There is no way to avoid STCG tax liability.

However, you can reduce the tax liability either by holding the plot for 3 years or by transferring the same to your mother/wife as a gift.

Since you are selling it within 2 years you will have short term capital gain tax.

Now for selling plot P2 selling price shall be Rs. 90 lakh as mentioned by you.

Its cost shall be 78 lakh less 10 lakh capital gain which you had claimed as exemption earlier.

Therefore your short term capital gain would be 90-68 which is 22 lakh.

STCG would be

Sale consideration of P2 Plot      -   Rs.90 lacs

Less : COA (78-C1)                        -    (78-C1)

STCG                                               -     90 minus (78-C1)

The STCG would be as below:

Sales consideration- Cost of acquisition

Rs 90 Lakh- (Rs 78 lakh- C1 lakh)

Short Term Capital Gain (STCG) on sale of property in F.Y. 2019-20 is calculated below:

STCG = Sale Consideration Less Cost of acquisition (reduced by Sec. 54 exemption earlier allowed)

STCG = 90 Lakhs - (78 Lakhs - C1 Lakh)

I hope this answer satisfies your requirement.

Hi,

Firstly, your original exemption u/s 54 is not valid because for the exemption it is necessary to buy/ build a residential house. Only residential plot is not enough. Further, you can't sell this property for 3 years from the date of purchase.

You will also have to bear short term capital gain when you sale the plot within 2 years from the date of sale. However, if you sale after 2 years, then this capitalgain can be saved by investing the proceeds in another residential house property.