• Is capital gain applicable for my property deal

Dear Sirs,
I have sold an ancestral property in Sept 2017 and plan to reinvest the entire amount into a new project. In the absence of clarity the entire amount I have kept it in a new A/C by my name as a bank FD. The new real estate investment should happen by Sept 2018. 
My question is :
1. Is this amount is liable for any capital gain for the current financial year?
2. Since the amount is deposited as FD, how would the tax component be accounted for this for the current financial year?
3.Capital gain if applicable, how do I save on that for a current financial year ( without investing into govt bonds/ locking period 3 years)?

Thanks,
Asked 6 years ago in Capital Gains Tax

1) The long term capital gains (LTCG) arises upon sale of your ancestral property in Sept 2017, i.e., FY 2017-18.

2) As you wish to invest the proceeds into a new project, which I presume to be a new residential house, you should deposit the money in Capital Gains A/c maintained by your bank. It can be like any other SB a/c or FD a/c. The withdrawals are permitted only for the acquisition of the new house.

If your new project is not a residential house, then your LTCG will not get any exemption, unless you invest the money in specified bonds u/s 54EC or funds/units u/s 54EE with a lock in period of 3 years.

3) If you have any losses under the Long Term Capital Gains for the current year or brought forward from previous years, you can set off the gains on this sale against such losses. You can also choose to set off such LTCG against loss, if any, under the head Short term capital gains or business income.

B Vijaya Kumar
CA, Hyderabad
1001 Answers
124 Consultations

5.0 on 5.0

1) Yes, its liable for long term capital gains ('LTCG').

2) If you wish to buy/construct a new residential property, you have to deposit the money in Capital Gains Deposit scheme (CGDS) in the bank.

3) In that case, you will have to buy a new residential property to save taxes which again will be locked in for theree years. There is no way saving capital gain taxes without reinvesting the money unless you have brought forward capital losses.

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

1. if the property is purchased before 1.4.2001, you will have to take the SDV of 1.4.2001 and index the value till the date of sale to arrive at indexed cost of purchase and deduct the same from sale price to arrive at capital gain. If sale price is lower than stamp duty value ('SDV'), then SDV will be deemed selling price.

2. 2 years from date of sale in case of ready flat and 3 years in case of construction.

3. Amount equal to capital gain (assuming the ancestral property was residential property)

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

Dear sir,

The capital gain arises from the transfer of any long-term capital asset, not being a residential house, and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, one residential house in India, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

Shiv Kumar Agarwal
CA, Delhi
489 Answers
74 Consultations

5.0 on 5.0

Hi

For exemption from capital gains when you need to invest the amount in a residential house property, you need to deposit the amount of capital gain in capital gain deposit account if the amount is not invested before due date of return filing. Otherwise, it will be taxable in the current FY and no exemption will be provided later.

For cost of acquisition calculation, index the value of property as on 1.4.01.

You can purchase a new residential house property within 2 year of sale or construct one within 3 years of sale.

Lakshita Bhandari
CA, Mumbai
5687 Answers
909 Consultations

5.0 on 5.0

1) As your property is an ancestral property, it helps you to ascertain the fair market value of the property as on 1st April 2001, if you take the help of a registered valuer. If the sale value is less than indexed cost of acquisition, then it will be long term capital loss, which can be set off against other long term capital gains or at your option set off against income from other heads. The unabsorbed loss can be carried forward and set off against long term capital gains in the future.

2) If you are buying a flat it is one year from the date of sale and if you are constructing a house, it is three years from the date of sale .

3) Only capital gain amount needs to be invested in the new house to claim exemption u/s 54. So it is sufficient to keep only the capital gain amount in the bank account held under capital gains scheme.

B Vijaya Kumar
CA, Hyderabad
1001 Answers
124 Consultations

5.0 on 5.0

Hi,

To answer your questions:

1. Yes the net capital gain has to be offered to tax in the FY 2017-18 in the return filed in July 2018. If you want to claim that the capital gain is exempt since you are going to invest in a new residential property, then the capital gain amount has to be invested in a Capital Gain Account with any bank. As and when you purchase the property, the funds will be issued from the said account.

The new property has to be purchased within 2 years, in case you buy a ready property, or 3 years, in case you invest in an under-constructed property.

2. The interest that your will earn from the FD will be offered to tax as "Other Income". Since you will transfer the funds to the Capital Gains Account, the interest which you will earn on such account will also be offered to tax as "Other Income".

3. Capital gain will arise on sale of any immovable property. The difference between the sale consideration and the indexed cost of acquisition will be the long term capital gain.

Sale Consideration = Sale Price - Any brokerage or selling expenses incurred

Indexed Cost of Acquisition = Cost of property as on 1 April 2001 * 2.72

The Capital Gain will be exempt if you invest the amount of capital gain in another residential property, as explained in point 1 above.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B

Keerthiga Padmanabhan
CA, Greater Mumbai
784 Answers
27 Consultations

5.0 on 5.0

To compute the cost of the property as on 1 April 2001, you can obtain it from the Registrar's Office or appoint a valuer who can determine the value as on the said date.

If the net capital gain is a loss (if the sale consideration is less than indexed cost of acquisition), then there will no capital gain tax. The net loss will have to be declared in the return that you will file in July 2018. You can set it off against any other long term capital gain, which you may earn in the next 8 years. However, you should ensure that you file the returns for all the subsequent years on time.

If there is a gain (and not a loss), then you can invest in a new residential property. The new property has to be purchased within 2 years, in case you buy a ready property, or 3 years, in case you invest in an under-constructed property. If you invest less than amount of capital gain in the new property, then proportionately the amount of exemption will reduce.

You will have to park the amount of capital gain in the Capital Gain Account in any bank. However, you can always buy a house using the entire sale consideration.

On another note, you had mentioned that the property is an ancestral property. If there are legal heirs apart from you, then the capital gain will be equally divided amongst all of them.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B

Keerthiga Padmanabhan
CA, Greater Mumbai
784 Answers
27 Consultations

5.0 on 5.0

Query has been taken care of by Mr. Vijaya Kumar. Feel free to get back in case any part of it has been left unattended.

Rohit R Sharma
CA, Mumbai
2104 Answers
95 Consultations

5.0 on 5.0

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