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I have two properties, one in Bhopal (Sale Deed of 2011) and another in Mumbai (Sale Deed of December 2015). The Bhopal property is in my name while the Mumbai property is jointly in the name of my wife and me. I plan to sell the Mumbai property and use the sale proceeds to close the existing home loan of the Bhopal property. I request advice on capital gains tax treatment based on prevailing rules and regulations. I want to understand the time frame (in years) within which the tax implications occur. Also, are there any rebates for people belonging to Non-Resident Indian Category.
Asked 6 months ago in Capital Gains Tax from Djibouti

Hi

 

The sale transaction shall be subject to capital gain taxes. It would be a Long term capital gain.

 

Capital gain will be calculated by reducing indexed cost of acquisition from the sale proceeds.

 

LTCG is chargeable @ 20 % as added by surcharge and cess.

 

If you invest the capital gain amount in new residential house property or 54EC eligible bonds, the capital gains shall be exempt.

Lakshita Bhandari
CA, Mumbai
4255 Answers
239 Consultations

5.0 on 5.0

Dear Sir,

 

Hope you are doing well !!

 

To calculate the long-term capital gains tax payable, the following formula is to be used:

Long-term capital gain = full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer), where:

Indexed cost of acquisition = cost of acquisition x cost inflation index of the year of transfer/cost inflation index of the year of acquisition.

Indexed cost of improvement = cost of improvement x cost inflation index of the year of transfer/cost inflation index of the year of improvement.

 

Please share the details of property like date of purchase, cost of acquisition, cost of improvements, cost of sales  for exact capital gain calculation.

 

There are numerous slabs and sections under which you can save on tax if you reinvest your long-term capital gains.

 

Section 54

 

Under this section, you can avoid tax on capital gains from the sale of a house property if you reinvest the money to buy another property. You can claim tax exemptions under this section if you buy the new property one year before the sale or two years after the sale. In case it is under construction, the new property should be ready within three years of the old property’s sale.

 

To claim full exemption the entire capital gains have to be invested.

 

In case entire capital gains are not invested – the amount not invested is charged to as long-term capital gains.

 

This exemption will be reversed if you sell this new property within 3 years of purchase and capital gains from the sale of the new property will be taxed as short-term capital gains.

           

Section 54F

 

Under this section, you can avoid tax on capital gains from the sale of any assets other than house property if you reinvest the money to buy another property.

 

You can claim total tax exemption by using the money you gain from selling any asset (except a house property) to buy a house property, which needs to be bought one year before the sale or two years after the sale. For under-construction properties, the new property should be ready within three years of the asset’s sale. 

 

To claim full exemption the entire sale receipts have to be invested.

 

In case entire sale receipts are not invested, the exemption is allowed proportionately.
[Exemption = Cost the new house x Capital Gains/Sale Receipts]

 

This exemption will be reversed if you sell this new property within 3 years of its purchase or construction OR if you purchase another residential house within 2 years of the sale of the original asset or construct a residential house other than the new house within 3 years of the sale of the original asset. Capital gains from the sale will be taxed as long-term capital gains.

 

Section 54EC:

You can claim tax exemption by using the amount you gain from selling an asset to buy bonds issued by NHAI and REC.The bonds should be bought within 6 months of the sale of the asset. The maximum amount you can invest in this way is Rs. 50 lakh. It will lock your money for 5 years.

 

Capital Gains Account Scheme (CAGS):  if you do not get a chance to invest in a profitable property immediately and still want to save your long-term gains from being taxed, you can invest your capital gains in CGDAS by approaching any public sector bank. The timeframe for the purchase or construction of the property remains unchanged in this case as well. But you can utilise this account momentarily so that you save your gains from being taxed and have more time to finalise a property for reinvestment.

 

It is required to deposit such unutilised capital gain in the capital gains account before furnishing return of income but not beyond due date for furnishing return of income.

 

Normally, the due date of filing Income Tax return is July 31 for the previous Financial Year. Under extraordinary circumstances, it can be extended by the Finance Ministry.

 

 

 

 

Payal Chhajed
CA, Mumbai
3730 Answers
50 Consultations

5.0 on 5.0

- No rebates for NRI.

- Capital gain tax will be calculated usually and you need to pay tax on it as the amount will be used for repayment of loan.


- Gain/Loss will be treated as long term capital gain as the holding period will be more than 2 years.

- As the property is in the name of husband and wife, therefore tax will be borne equally by the husband and wife (if no share is mentioned in the deed).

- In case of NRI, purchaser will deduct the TDS at higher rate therefore purchaser needs to obtain certificate of lower deduction from his jurisdictional AO.

- No exemption would be available as the amount will be used for repayment of loan. To avail the exemption, you need to reinvest the amount in another residential property or bonds.

Vivek Kumar Arora
CA, Delhi
3291 Answers
175 Consultations

5.0 on 5.0

Hello, 

 

It would be Long Term Capital Gain chargeable at 20%.

Capital Gain would sale considertaion minus indexed cost of acquisition, indexed cost of improvement and transfer expenses.

 

For Capital Exemption, you need to invest in either a new house property u/s. 54 or in specified bonds u/s. 54EC.

For proceeds to be used towards home loan, you will get deduction u/s. 80c for principal repayment and u/s. 24 for interest repayments upto specified limits.

 

I hope this answer satisfies your requirement.

 

Regards,

CA Hunny Badlani

Badlani & Associates

 

Hunny Badlani
CA, Madhya Pradesh
1587 Answers
5 Consultations

5.0 on 5.0

First of all if you sell the property and use the money to repay loan account of another property it won't help you in saving any capital gain.

If you don't plan to invest the capital gain amount in the same year either in another house property or in bonds within 6 months of sale then you'll have to pay tax in same year or else if you wish to invest the amount in later years you can invest the amount in capital gain account scheme and save tax but you need to purchase a house in next 2 year or construct within 3 years.

There is no special benefit available to NRI.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Naman Maloo
CA, Jaipur
2688 Answers
24 Consultations

5.0 on 5.0

1) There will be long term capital gains (LTCG) on sale of your property in Mumbai.  The LTCG has to be offered for assessment both in your hands as well as in the hands of your wife. However, if the purchase of property by your wife in 2015 out of your funds, such LTCG will be clubbed in your hands. 

2) The LTCG can be invested in the purchase of a new house within  1year preceding the sale or within two years from the date of sale.  As you intend to repay your loan on your residential house property in Bhopal purchased in 2011,  the exemption u/s 54 is not available to you now. 

3) As you are a NRI, tax will be deducted at source u/s 195 of the Income Tax Act by the buyer.

4) There are no special rebate or additional  tax liability even if you are a NRI. The tax liability will be 20.8%  on LTCG. You can save the tax if you invest in another residential house u/s 54 or capital gains bonds u/s 54EC. 

 

I suggest that you should take professional help while finalizing the sale to take care of Income Tax related issues.  

 

B Vijaya Kumar
CA, Hyderabad
901 Answers
74 Consultations

5.0 on 5.0

Hello Sir,

 

The calculation of capital gain is very simple. It is just the profit on sale of your property. It means you have to just subtract the cost of the property from the sale price of property.

 

Capital gains = Sale price of the property – Cost of the property

 

But the use of inflation index changes the cost of the property. To get the cost of property after using the indexation, the following formula is used.

Indexed cost of property = Cost of the property x (cost inflation index of the year when property is sold /cost inflation index of year when property was bought )

Hence, actual capital gains would be as following.

 

Capital gains after indexation = Sale price of the property – Indexed cost of the property

Example

Shyam buys a house of for 30 lakh in May’ 2009, after 4 years he sells it for 45 lakh. What would be his capital gain ?

To get the real capital gains we have to use the indexed cost of acquisition. To calculate the indexed cost if acquisition we need capital gains index of 2009 and 2013. You can get this data from the cost inflation index table.

Cost inflation index of 2009-10 = 632

Cost inflation index of 2013-14 = 939

The indexed cost of property = (939/632) x 30,00,000 = 1.486 x 30,00,000

The indexed cost of property = 44,57,278

Capital gains = 45,00,000 – 44,57,278 = 42,722

Hence, the capital gains is Rs 42,722 instead of Rs 15 lakh. The capital gains tax on 15,00,000 would have been 3 lakh (15,00,000 x 20%) but because of cost inflation index it has become only Rs 8,544.

 

You can also take the benefit of indexation on cost of improvement of property. It will reduce your tax liability.

 

 

There are below exemptions related to purchase of new residential house property in order to save tax on long term capital gains.

 

Investing capital gains from sale of residential house (Section 54)

 

If an individual or HUF earns capital gains on sale of a residential house and invests the amount of capital gains to buy or construct a new residential property, the capital gain will be exempt from tax.

 

Conditions attached

  1. New residential property must be purchased either 1 year before the sale or 2 years after the sale of the property. In case of construction, the new residential property must be constructed within 3 years after the sale of the property.
  2. To avail the full exemption, entire capital gains have to be invested in a new property.
  3. In case, entire capital gains are not invested, the amount not invested is chargeable to tax as long term capital gains.
  4. The amount must be invested in purchasing or constructing only ONE house property. The house property must exist in India.

 

Investing capital gains from sale of capital asset other than house property (Section 54F)

 

You can also save capital gains tax if the sold property is not a residential property. Under section 54F, the capital gains is exempted if sale proceeds of non residential property is invested in a residential property.

 

The same exceptions as those under Section 54 are applicable to Section 54F

 

 

Exemption under Section 54EC:

Under Section 54EC, you do not have to pay LTCG tax on sale of any long-term capital, if the amount received as capital gains is invested to buy specific notified government bonds and securities. The bonds should be bought within 6 months of the sale of the asset. The maximum amount you can invest in this way is Rs. 50 lakh with lock in period of 5 years.

 

 

Deposit in Capital Gain Deposit Account Scheme:

Capital Gain Deposit Account (CGDA) Scheme, 1988, is complementary to Section 54 and Section 54F. If you are unable to utilise the entire capital gains made in a transaction till the date of filing Income Tax Return, then you can deposit the unutilised amount under the CGDA Scheme in any public sector bank. Once the money is deposited in this account, you need to use it within 2 years (in case of purchase of a new house) or 3 years (in case you are constructing a new house).

You have to open the account before the deadline to file I-T return, and the money must be used only to buy a residential property. If the money is not utilised in buying a house within the time limit, the capital gains will be subject to tax.

Sale of a long-term capital often gets you high profits because of the increasing inflation and cost every year. If you invest the profits well, you can save yourself 20% of the amount which otherwise would go to the government as tax.

 

-There is no special rebate for NRI.

 

If you need any further assistance,please let me know.

Karishma Chhajer
CA, Jodhpur
1522 Answers
11 Consultations

5.0 on 5.0

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