Query related to property sale and capital gain and income tax

Hi,

1) Investing the Sale Proceeds from the selling of residential house , in land does not exempt your capital gain, if any.

2) From FY 2017-18, Period of holding for Long Term capital gain is reduced from 36 months to 24 months. but prior to that period of holding of capital asset should be 36 months to claim long term capital gain.

3) No cash transaction is allowed in sale of an capital asset.

4) Yes , you would received. but you have to calculate Capital gain/loss on the value of Rs 29.5 lakhs only. and go for registration of sale deed after you received the maximum amount.

5) Payment modes can be cheque, demand draft, online transactions, it is better to mention cheque no or transaction number in the sale deeds.

6) you need to mention sale transaction details i ITR (loss or gain) under capital gains.

if you invest the capital gain amount under section 54, then no additional income will be added in your income.

7) mainly time frame for investment is 6 months of the transaction date.

i am sending the investment details in my next answer.

Hi,

Period of holding will be calculated from the date of allotment of the flat/ agreement to sell the flat.

calculate the capital gain as below

Indexed Cost of Acquisition = (Actual cost of purchase) * (CII Of Year of Sale)/(CII of Year of Purchase).

Indexed Cost of Improvement = (Actual cost of improvement) * (CII Of Year of Sale)/(CII of Year of cost of improvement).

Any Selling Expense like Brokerage Expense

Capital Gain = (Sale Price MINUS (Indexed Cost of Acquisition + Indexed Cost of Improvement + Selling Expense).

in your case index cast of acquisition will be index cast of each installment.

This capital gain you are required to invest under section 54 to avoid paying any taxes on that.

there are three ways in which you can get capital gain exemption

if you planning to purchase another property or have already purchased one year back from the sale of the property then

under section 54:

The exemption under this section is only available to persons that satisfy the following conditions:

An individual or Hindu Undivided Family (HUF) that legally maintains ownership of the house property;

The house property is used only for residential purposes;

The house property is a long term capital asset, and was not transferred or sold within the first three years after the initial date of purchase or construction.

To claim the exemption, one must invest the proceeds derived from the sale of the house property into another residential house either within two years from the date of the sale or one year prior to sale, or one must invest in the construction of a new house within three years of the sale.

The exemption amount will be:

Equal to the amount of the capital gains if the cost of the new house property is greater than the capital gains; or

Equal to the cost of the new house property if the cost is less than the capital gains.

Meanwhile you can park your capital gain (full amount or utilized amount) in CGAS (Capital Gain Account Scheme)

This is only a stop-gap arrangement, as the funds have to be used to buy or build a house within the period specified.

The deposited money can be used only to buy or construct a residential house within the prescribed time frame.

If you withdraw funds from this account, they have to be used within 60 days.

If you do not utilize the amount within three years of the sale of the first property, such un-utilized amount will be treated as LTCG this will lead to taxation of the unutilized amount as long-term capital gain after three years of the sale of the first / original property.

The interest rates paid on these accounts are the same as those on regular savings and term deposits. Kindly note that interest earned on this account is taxable.

You can invest the capital gain amount in bonds under section 54EC:

Capital gains from sale of any long-term asset can be claimed as tax-exempt under Section 54EC of the Income-Tax Act by investing in notified bonds within six months of the transfer of Asset.

These bonds are issued by the Rural Electrification Corporation and the National Highways Authority of India.

The exemption is equal to the investment or the capital gain, whichever is lower. If you transfer or take a loan against these bonds within three years, the capital gain will become taxable.

These are redeemable after 3 years and must not be sold before the lapse of 3 years from the date of sale of the house property.

You are allowed a period of 6 months to invest in these bonds, but before the Income Tax Return filing date (to claim this exemption).

You can invest a maximum of Rs 50 lakh during a financial year in these bonds as per Budget 2015-16

Dear Vivek,

1. No, you won't get any deduction in that case.

2. From FY 2017-18, Period of holding for Long Term capital gain is reduced from 36 months to 24 months. Hence you are eligible for long term capital gain exemption if you sale your house FY 2017-18 and invest in other options like REC/NHAI bonds etc.

3. Legally, no cash transaction is allowed in sale of an capital asset.

4. Any mode other than cash. But capital gain/loss will be calculated on the value of Rs 29.5 lakhs

5. Yes.

6. Within 2 years from the date of sale in case your are buying a ready flat or 3 years in case you want to construct a flat. However if you do not buy a house before return filing datr, you have to keep the money in cgds account.

Please feel free to call/revert in case of any doubts

Thanks and Regards

Abhishek Dugar

CA CS B.Com

Hi Vivek,

1) Yes. You can invest in residential plot after selling your Flat and claim exemption from Capital gains in the year of sale u/s 54. However, you should complete construction of a House on that land within 3 years from the date of sale. Otherwise, you will have to pay capital gain tax after 3 years at the rates in force at that time. Also, the Capital Gain amount not utilized for buying the Land should be invested in a Capital Gain Account Scheme.

2) Did you mean selling of existing flat or the newly purchased flat, if any? If you have utilized Section 54 benefit, and the new house is sold within 3 years, then the capital gain exemption claimed will be added to the cost of acquisition of the new house while calculating Capital Gains

3) The Union Budget presented on Feb 1 has inserted a new Section 269ST in Income Tax Act (with retrospective effect from FY 2016-17) which bars receiving more than Rs. 3 Lakhs in Cash in respect of any single transaction. Failure to do so will attract a penalty equal to the amount so received

4) I would suggest to receive the entire money in White and show the same amount in Sale Deed

5) Yes. The Capital Gain amount from this Sale will be added to your current income. However you can take benefits of Capital Gain exemption u/s 54 or 54EC

6) Time limit to buy a ready to occupy House is one year before or 2 years after the date of sale of existing flat. For construction, you have 3 years time. If you don't want to buy another house, you can still save tax by investing the Capital Gain amount in Capital Gain Bonds notified u/s 54EC within 6 months from the date of sale

Hello Sir,

1. No, you cannot invest the sale proceeds of the flat to buy a land in order to save capital gains.

2. NO, LTCG is applicable after 3 years from the date of purchase.

3. No Cash transaction is allowed.

4. It is preferable to make your agreement for 29.5 Lacs, as the amount you receive over and above your agreement value is black money and not advised.

5. Yes, the gains shall be added.

6. If it is long term then only you ca invest, if it is short term then no exemption benefit is available.

Trust this clarifies your query.

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

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP

1) You can invest in land but you will not get any exemption, unless you construct a residential house within 3 years from the date of the sale of your 1 BHK flat.

2) If you are selling the present 1 BHK flat after 2 years, you will not get any exemption in respect of your investment in the land. You need to invest in bonds or residential house to claim exemption.

3) Take the entire money in white only.

4) Register the property for the actual sale amount, even if it is more than the stamp duty value. As far as you are concerned, you will not have significant additional tax liability because of this.

5) The Long Term Capital gain on sale of your flat will be part of your total income comprising your regular sources of income, like salary, income from house property, business/profession and others.

6) If you are buying a flat, it should be within 1 year and if you are buying an independent house, it should be within 3 years.

1. You should invest in residential property for claiming exemption. Land is not eligible.

2. Sale of property before 3 years is not eligible for exemption as the same is treated as STCG.

3. As per Budget 2016 you cannot take cash more than 20000.

4. If registration value i.e. sale deed is 29.50lakhs then the amount should be received in cheque. If as per paper it is 21 lakhs then take 21 lakhs in Cheque and remaining cash which is not shown.