Profit gained from selling a property

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 gain.

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.

Hi

 

If the property was purchased before 2 years, it would be LTCG. Indexation shall be allowed on the cost of acquisition in accordance with the year of purchase.

 

So, the capital gains will be less than 30 lacs.

 

Further, if you invest in another residential house property within 2 years of sale or construct a new residential house property within 3 years of sale, the capital gains shall be exempt under section 54.

 

Please share the date of acquisition for calculation of the capital gains.

- First you need to check whether the gain is long term or short term. If the property is held for more than 2 years it is treated as long term otherwise short term.

 

- Assuming it is long term then you need to calculate indexed cost of acquisition and deduct from the sale consideration to arrive at the capital gain. The LTCG is taxable at 20.8%. To save tax you need to reinvest within 2 or 3 years.

 

- STCG is chargeable at slab rates. No exemption would be available.

 

- No deduction under section 80C would be available.

 

 

Hello,

 

If the property being sold is acquired two years back, the cost of acquisition would be indexed using the cost inflation index.

To calculate the exact capital gain, dates of purchase and sale would be required.

By investing in another house property, you can claim exemption u/s. 54/54F.

Period of investment is 2 years for purchase and 3 years for construction of the new house property.

I hope this answer satisfies your requirement.

 

Regards,

CA Hunny Badlani

It depends on whether the property is a land or house property, if its house property then you can save tax by investing in another house property.

No the capital gain wont be calculated like this if you have held the property for more than 2 years.

If its house then you need to only invest the capital gain amount in next house and you can use the remaining amount as you want.

You need to purchase new house within 2 years or construct within 3 years from date of sale.

 

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

Thank you.

 

The capital gains would be sale price less the indexed cost of acquisition. Indexation is to be done for the year you purchased the house.  The cost would be the actual cost as incurred to buy that property.  Indexation is a cost inflation index which is notified by the Govt. It is done to adjust for inflation over the years. This increases one’s cost base and lowers the capital gains. Capital gains = sale price -  indexed cost of acquisition – any other expenses incurred for executing sale. You can add the registration cost to your purchase price and claim deduction for computing capital gains. The indexation are notified values and you need to consider the same for the year you acquired the house and sale the house. IN case the house was acquired before 2001, you can claim fair value as cost.

 

You can invest capital gains for purchase of another house to save tax.  You should purchase a residential house either 1 year before the date of sale or 2 years after the date of sale. In case of constructing a house, you have to construct the residential house within 3 years from the date of sale. Until such purchase, the gains can be deposited in a PSU bank or other banks as per the Capital Gains Account Scheme, 1988. This deposit can then be claimed as an exemption from capital gains, and no tax has to be paid on it. However, if the money is not invested, the deposit shall be treated as capital gains in the year in which the specified period lapses. IN case, the buyer has deducted taxes and you are making investment to claim capital gains tax exemption, you can claim refund of TDS by filing the return. Please call if you need to discuss the mechanics