Understanding of taxation on real estate transaction is very important so one can do the necessary tax planning and save the maximum possible capital gains tax on sale of property.Real estate is surrounded by many income tax provisions. Starting from buying of property, keeping and maintaining the same and continues till selling it out. This article is related to the taxation aspects related to the
Real estate is surrounded by many income tax provisions. Starting from buying of property, keeping and maintaining the same and continues till selling it out. This article is related to the taxation aspects related to the
This article is related to the taxation aspects related to the sale of the property with special reference to section 54, 54EC and 54F of income tax act.
Taxation aspects related to buying of real estate on loan has been covered in my earlier article on Housing loans. One should also know that keeping second property (if any) idle may attract wealth tax and to avoid wealth tax one must let out the property and come under tax provision of “Income from house property”. There’s nothing called tax free in real estate 🙂
Provisions to save capital gains tax on sale of property defined under section 54, 54EC and 54F of income tax act.
According to these sections, how much tax you have to pay on profits earned from a real estate sale, depends on 2 things:
- Type of property like Residential, Commercial or Plot/Land
- The holding period of the same.
Let’s start with the second point first i.e. holding period of the property. If you have held the said property for less than 3 years (2 years w.e.f FY 2017-18) before selling it out then the gain/loss that you have earned will be termed as Short-term capital gain. And if the holding period is 3years (2 years w.e.f Fy 2017-18) or more then it will be Long term capital gain.
In the case of short-term capital gain, there’s no option to save capital gains tax on sale of property. The complete capital gain amount will be added to your income and you will be taxed as per the income tax slab you will fall into. Provisions of Section 54, 54EC and 54F of income tax apply only to the long-term capital gains tax on sale of property.
The type of property you have transacted into also impact the taxation aspects. Section 54 provisions apply to the residential property, section 54F to non-residential and 54EC to all kind of properties. Let’s go through these ones by one:
- Section 54: Income tax provision under section 54 applies only to long-term capital gains i.e. capital gains booked after holding period of
32 years or more and that too only on Residential property. Section 54 says that you can save capital gains tax on sale of property which should be residential housing, by reinvesting the capital gain amount into another Residential property. Further, you also have following options available with you:
a) You can buy the new residential property in next 2 years from the date of sale of existing property.
b) You can construct a new residential house in next 3 years from the date of sale of existing property.
c) You may also buy any residential property even before 1 year from the date of sale of existing property.
d) If you need some time to buy the new house property, then you have to deposit the Capital gain amount into Capital Gain Account Scheme. These are special bank accounts meant for parking of capital gains till the time the new property has not bought. You have to open this account and deposit the amount before the due date of filing of income tax return for the financial year in which gains have been booked.
Also, note that the time period of the deposit should not exceed 2/3 years as explained under points a) and b) above.
Let’s understand these provisions with an example:
Rajan sold one Residential property on 01/11/2014 for Rs 50 lakh and earned an indexed long-term capital gain of Rs 10 lakh. What are the options available to him to save capital gain tax on sale of property?
( Read: what is indexation and how it works in capital gain computation)
Rajan has 3 options available to him – One he may buy another residential house property for Rs 10 lakh or more before 31/10/2016, the second option is to construct a residential property before 31/10/2017, and the third option is to buy Capital gain bonds within next 6 months.
- Section 54F: This section is meant for long-term capital gains from sale of property other than Residential. Plot/Land, the commercial property comes under this. As per section 54F, you can save capital gains tax on sale of property (non-residential) using following provisions:
a) You have to invest the complete sale proceeds in a residential property. Unlike as in section 54 where you have to invest only Capital gain amount.
b) If you don’t invest complete proceeds then you will get an exemption on prorate basis, with the calculation as Amount invested*Long term Capital gains/Net consideration
c) You can invest in any manner as mentioned in section 54 above.
- Section 54EC: This section applies to all kind of properties. If you don’t want to buy another residential property as per conditions laid down in section 54 and 54F, but still want to save capital gain tax on sale of property (residential or nonresidential), then you may also buy specified Capital gain bonds available under section 54EC. The notified bonds under this scheme are of Rural Electrification Corporation (REC) and National Highways Authority of India (NHAI). The maximum limit one can invest in these bonds in a financial year is Rs 50 lakh. These bonds have to be purchased within 6 months of transfer of property. ( Read: Are Capital gain Bonds worth buying?)
Save capital gains tax on sale of property – Important points to keep in mind
- You have to buy only residential property to save tax on capital gains arising out of sale of any other property. Means you cannot buy land or commercial property to save capital gains tax.
- You can hold only one more property other than the new residential property when claiming under section 54F. Though no such condition is there in section 54.
- You cannot sell the new residential property within first 3 years after acquisition.
Conclusion:
Buying Real estate has always been one of the parameters of success in today’s world. But with lack of understanding and no planning, you could end up in a financial mess. Tax planning is an integrated part of financial planning. So whatever you do financially, you should also consider the tax aspects related to it.
Real estate is a costly asset class not only at the time of buying but also while maintaining and selling. Understanding section 54, 54EC and 54F of income tax act is very important so you don’t make mistakes of investing the long-term capital gains from the sale of property in the wrong manner and end up paying heavy taxes.
Hope you find the article useful.
Do you have any question on saving capital gains tax on sale of property? Feel free to ask in the comments section below.
Manikaran Singal is the founder and Chief financial planner at Good Moneying Financial Solutions. He is a CERTIFIED FINANCIAL PLANNER CM and SEBI registered Investment adviser (Regd no. INA 100001620). He’s having more than 12 years of experience in financial services space.
in terms of STCG in real estate can this be offset by losses in Equity markets (less than 1 yr – STCG).
Also when does the 3 yr period for calculating STCG/LTCG start – the day of Registering property by concerned authority or signing of Builder Buyer Agreement or letter of possession,
Pankaj, as per my understanding Short term capital loss from equity can be set off with Short term of gain from property and even with long term capital gain of property.
and the 3 year period starts from the date of Registration or possession which ever is earlier.
Dear Mr Singal, I bought my first house in 2002 and sold it in Oct 2014. Then 2008 I bought a second one jointly with my wife. Now my doubts are as follows:-
1) Can i put the indexed capital gains to repay by second loan ?
2) Can I transfer the only house that i have now to my wife’s name and thereafter buy a new property under Sec 54 with the indexed capital gain.
3) What else can i do to save on LTCG ?
Thanks in advance
Ajith, pls find my answers below:
1. No. As to save capital gain there are 3 clauses – you either buy new residential property 1 year before selling off your existing property, or with in next 2 years of sale or you may construct a new house within next 3 years of sale. As you have bought your second property in 2008 , so you cannot repay the loan and save on capital gains tax.
2. You can do that, but why do you want to do this. Section 54 does not restrict you to hold more than 1 house in your name to claim capital gain tax benefit. This condition is only when you want to save capital gain tax under section 54F.
3. You can buy Capital gains bond under section 54EC with in next 6 months of sale upto maximum of Rs 50 lakh to save tax.
Dear Singal Sir,
We are having a joint property which was owned by my grandfather. Now at present, my grandfather is expired & we selling the property. There are 4 share holder in the mention property & each will get around 50 lakhs each. I will also get 50 lakhs, but with those 50 lakhs i have to purchase one residential property for my servival. Now as per “section 54” says that i can save capital gain tax on sale of property which should be residential housing, by re-investing the capital gain amount into another residential property. Buying the new residential property in next 2 years from the date of sale of existing property.
Do i still have to pay wealth tax 1% on my 50 lakhs?
Mr Talwar…good news is that wealth tax has been abolished from FY 2015-16
Dear Singal Sir,
First of all THANKS for sharing the information, but still i am litte confused. As i am re-investing the capital gain amount into another residential property (Buying the new residential property in next 2 years from the date of sale of existing property). Do i still have to pay any tax or file any income tax return? If yes, then pleaze kindly share the details that what are taxes i have to pay or file any income tax return. As per my small knowledge i am deposting the capital gain amount into capital gain account scheme, 1988. And same is going to be re-investing buying the new residential property in next 2 years from the date of sale of existing property.
No, as you will be buying property in next 2 years, you need not to pay any long term capital gain tax. You are doing right thing by parking sale proceeds in capital gain account. Now how to show this transaction while filing IT return has to be confirmed from CA.
i purchased a flat in 1959 in chennai which i am selling now. am i have to pay incometax on full value on regular slab. viswanathan a.v.
i want to sell my flat in chennai which i purchased in 1959. can i avail capital gain or i have to pay income tax on full sale value per slab. a.v.viswanathan
Capital gains on selling residential property is covered under section 54 of income tax act. You have 3 options to save indexed capital gain tax :
– Buy Capital gain bonds of Rs 50 lakh ( maximum limit) from the the capital gain value, and pay tax on the rest of the amount ( if any)
– or buy another residential house in next 2 years
– or construct a residential house in next 3 years
Till the time you buy/construct a new property, deposit the capital gain amount into Capital gain deposit scheme( bank a/c)
Hello Sir,
My father in law bought a land in Mumbai for residential purpose and built 10 years back. cost for was land 10 lac and for constructions approx 40 lacs.
Now he is selling his house for approx 3 crores. I have below queries.
1. how much amount will be taxable and what would be tax rate (%)
2. can he buy 2 residential flats.
3. He has house loan on the same property and outstanding is 30 lacs. will the loan amount be tax free if he pays loan from the said amount (3 crores).
4. He wants to invest some amount in the fix deposit so that he can get monthly income from there. Is this amount tax free.
5. He wants to buy 2 flats of 1.7 crores ( 1crore+70 lacs). What will be the taxable amount thn.
6. He wants to buy one flat in his name and other in his daughter’s name. Is that ok or will there be any tax on the property which he is planning to buy in daughter’s name.
Hoping your soonest response on above.
Thank you
1. This needs to be calculated. tax rate would be @ 20% on indexed capital gain. ( Sale price – indexed cost)
2. yes.
3. No
4. He will invest in FD after paying capital gain taxes. and FD interest will be taxable in his hands.
5. Capital gain tax can be saved by investing in residential properties.Read my article again for clarification. If the indexed capital gain from sale of your property comes out to be 1.70 crores, then by investing the complete amount in other residential property/ies you can save the entire capital gain tax.
6. To save tax he’s to buy both flats in his name only.
Thanks
6.
Dear sir,
I sold a vacant site and got capital gains, and i invested the same in construction of a house property which falls in the stipulated time period.
My question is i have another residential house property in my wife name and she expired recently, i have included rental income of that property in my returns and khatha is transferred to my name, But house is not transferred to my name. Am i eligible for the exemption under sec 54f?
I believe yes you can claim 54f benefit, as the transactions of selling site and constructing house property happened when your spouse was alive ( i assumed so). Still it is advisable to consult some CA on this query.
I have sold a commercial property and want to invest in a residential property. Will i get tax benefit ?
Yes. You have to buy residential property with in 2 years of selling the commercial one or construct with in next 3 years. You have to use complete sale proceeds otherwise you will get tax benefit on proportionate basis. Do keep a tax expert in the loop.
Firstly a very good article, well written sir and most informative on the web. I have a couple of queries.
1. If a residential or commercial property is owned by 2 people – can each of them buy a residential property each under 54 / 54f respectively and invest 50 lacs each so a total of 1 cr.
2. If an individual is selling 2 residential properties together – can 2 properties be bought under section 54 with the LTCG separately or LTCG invested in a single property.
3. How to invest in nhai or rec bonds
4. Is plot in a developed society eligible under 54 /54f. If not then if we complete construction in 3 yrs then cost of plot be included.
5. Any cost like TDS on sale or wealth tax etc is payable
6. Trust the registration / stamp duty is included under cost of new property. How about brokerage / one maintenance deposit.
Many thanks
Jaideep
Hi Jaideep. Thanks for liking my article. Pls find my replies point wise. Also pls note that its wise to have a tax professional views on the same
1. Yes
2. From capital gains from 2 properties , 2 residential properties can be bought, even a single property would serve the purpose. However by selling one property one cannot buy 2 residential properties to save on capital gains tax.
3. Visit any broker, or respecive companies website to download the form.
4. You cannot save capital gain tax by buying plot, either you buy a residential property or construct one in 3 years. Yes, cost of buying plot would be considered in calculating capital gain tax saving.
5. Buyer will deduct [email protected]% of purchase amount if the txn is above Rs 50 lakh. Wealth tax has been abolished in India.
6. Yes, the Registration cost and Stamp duty will be part of total purchase cost.
Sir, I bought a land in 1998 in my wife’s name out of my earnings. Sold it in 2015-16. I have intended to deposit in REC bonds to avoid tax.
(1) Should I invest in my wife’s name or in it can be in my name
(2) Can I invest in wife’s name as first name and my name as second applicant.
Can you reply me at the earliest since I intend investing on 21st January 16.
Thanks in advance
This is bit complicated. Since the land was bought out of your earnings gifted to wife, so technically this is your income and not your wife, due to clubbing provision. But since property is in your wife’s name so capital gain can be saved only when bonds gets purchased in her name.
I believe, you should better contact some Chartered accountant for this query.
Thanks Sir. Upon discussion with tax experts, the amount has been invested in my wife name with nomination. They said clubbing provisions will come only after calculating the total income of my wife. Also the income on REC Bond’s will be added to my income in future.
my father owned inherited commercial property around 80 lakh, now we planning to sell this.
after capital gain tax of around 16 lakh{20%}. how to save tax on remaining amount? is father gift this money to mother and daughter? is it helpful
Gifting money would not save any tax already accrued to your father. Since he sold commercial property, so either he can buy a residential property out of complete sale proceeds or Invest in capital gain bonds ( with maximum limit of Rs 50 lakh) or can do both.
Dear Mr.Singal,
Thanks for the forum and the paintaking efforts you put in to clarify doubts of common man.
I own a flat and is having one fourth share of joint property, jointly owned by four sons, through settlement deed of our father, who died in 2014.
We have entered into a joint venture with one of the reputed builders, according to which, the builder will construct six flats of 1000 sft each and will take two floors and will give one flat for each of us. In addition, he will pay 14 lakhs to each of us and also rent for alternate accomadation. He has quoted 23 lakhs as cost of construction of each flat.
How will capital gains calculated for above joint venture.Since , by selling 1/3 share , we get a flat and amount as mentioned above.
How capital gains is calculated for such joint ventures.
If i claim capital gains exemption under sec 54, sell the other flat, should i pay capital gains for that or can claim exemption under sec 54 or 54 f.
Can I purchase another flat with my own funds and whether the cap gain exemption claimed under sec 54 will be reversed?
If i sell another flat too , pay LTCG tax for the jv flat, claim CG exemption under sec 54 for the second flat sold?
thanking you in anticipation
v.m.perumal
I think, its better you consult some CA in your region with all the details. He’ll be able to guide you better.
Dear Mr.Singal,
Thanks for the forum and the paintaking efforts you put in to clarify doubts of common man.
I own a flat and is having one fourth share of joint property, jointly owned by four sons, through settlement deed of our father, who died in 2014.
We have entered into a joint venture with one of the reputed builders, according to which, the builder will construct six flats of 1000 sft each and will take two floors and will give one flat for each of us. In addition, he will pay 14 lakhs to each of us and also rent for alternate accomadation. He has quoted 23 lakhs as cost of construction of each flat.
How will capital gains calculated for above joint venture.Since , by selling 1/3 share , we get a flat and amount as mentioned above.
How capital gains is calculated for such joint ventures.
If i claim capital gains exemption under sec 54, sell the other flat, should i pay capital gains for that or can claim exemption under sec 54 or 54 f.
Can I purchase another flat with my own funds and whether the cap gain exemption claimed under sec 54 will be reversed?
If i sell another flat too, pay LTCG tax for JV flat, claim CG exemption under sec 54 for the second flat sold?
thanking you in anticipation
v.m.perumal
Dear Sir, My son resigned from employment in India and joined a company in US in December 2015. He has SB a/cs in India and also he trades in equities. The dmat a/c is linked to on SB A/c. This year he will become non resident. He has no other income in India. Please let me know: 1. When he should inform bank about his Non residenship to convert his SB a/c to NRO a/c? 2) I am told that NRO A/c interest will attract TDS. If so can he give Form 15G? Will there be TDS on sale proceeds on equities (All LOng term non taxable) credited to NRO a/c? If yes how to avoid that? Am I correct -that he can take amount equivalent to US$ 10,00,000/- per year from his NRO account ( my friend says it is US$100,000/-)
1. He should immediately inform bank and get his account converted to NRO a/c. He also has to convert his Demat account to PINS a/c.
2. No, NRI cannot give form 15G to avoid TDS. But yes, he can file ITR and get his TDS refunded if the total income in India is less than or equal to minimum prescribed.
3. No TDS will be on Long term capital gain on Listed equity investments.
4. The maximum limit of repatriation is UDS$ 1 million i.e. $10,00,000/- per year.
Sir, my son trades in shares only out of Indian money earned in India. He does not buy any shares out of income earned outside India. I checked with HDFC Securities Ltd. They say they will deduct 14% TDS on all sale proceeds. They were not able to answer me properly. My question is whether tax will be deducted when shares are sold and credited to NRO account.
regards.
TDS is applicable on all taxable transactions done by NRIs, even if they have transacted from the money earned in India.But if the share sale happens after 1 year of holding then there should not be any TDS as LTCG on shares is tax free
After selling the COMMERCIAL shop how can I save my long term capital gain tax?
I do not want to invest in property and if in the 54EC bonds please tell me that if I have to invest the whole sale amount or I can invest only capital gain calculated after indexation.
Since you have sold non residential property so you have to use complete sale proceeds to invest in 54EC bonds.
Dear Mr Singal
My name is Sean.
My Mother has sold a couple of residential property in June 2016 and I plan to buy a new flat with my name first & her name second Can she be 2nd joint owner by invest that amount in this property ? Will she get the benefit of section 54 or will she still have to pay long term capital gain tax?
Sean, on the face of it i don’t see any issue in this. Since i believe that your mother would be contributing her share to save on capital gains tax and she be the “beneficial joint owner” with a specific percentage of ownership registered in her name in the new property.
But still i would prefer you should consult a tax expert on this matter and then decide.
RESPECTED MANIKARAN SINGAL,
I want your best advice sir..help me.
I had purchased a commercial booth in chandigarh having value60 lac but registry value was 46 lac . i took bank loan for purchase it and i also took cc limit to start a business. In less than 3 yrs i sold it for 70 lac but registry value( white money) 63 lac. But the collector rate of that booth was 95 lac which was’nt the present worth of our booth market value. my buyer of this booth took stamp papers of 95 lac but made the registry of 63 lac.
so now i want to know how can i get rid from this capital gain tax. is it possible in any way. i m not in a condition to pay tax due financial ill ness.
PLEASE GIVE YOUR PRECIOUS ADVICE TO HELP ME IN THIS MATTER AS SOON AS POSSIBLE.
Mr Singh, i believe you should consult a tax expert on this matter. I am not the right person to answer you.
Hello
I run a propreitorship firm. I bought an Industrial Unit / Commercial office for 5.5 lacs in Dec.2002.
I have been claiming depreciation on the same. The depreciated value of the property is now 1.9 lacs. If I sell the property today I will get Rs.60 lacs. Kindly explain incase if I sell the property what would be the Capital Gains tax implication. Whether it would be STCG / LTCG. Does depreciated value have any ramification on the Capital Gains tax. Will I get indexation benefit? What are the options available to lessen the tax burden.
Regards
Vijay
TOTAL PROCEEDS FROM SELL OF RESIDENTIAL FLAT AFTER 6 YEARS FROM THE DATE OF PURCHASE, CAN IT BE DEPOSITED IN THE PPF ACCOUNT TO CLAIM TAX BENEFIT ON LTCG AND ALSO TAX BENEFIT ON THE INTEREST ACCRUED?
To save capital gain on sale of property you have to buy either another residential property or 54EC capital gain bonds. You cannot save capital gains tax by investing in PPF.
Dear Mr.Singal,
Thanks for your information.
As mentioned under 54EC, are Capital Gain Bonds are available in the market throught the year and where.
Which are the Capital Gain Bonds, investing in which will not attract tax.
in case the transaction is being made near the end of financial year, can it be invested in the Capital gain Bonds in the next financial year without attracting any tax laibility.
Request your suggestion/advice.
You need to invest in 54EC bonds within next 6 months of the property transaction. You will get bonds from NHAI and REC. Maximum limit is Rs 50 lakh. You can save on capital gain tax, but interest from these bonds are taxable.
Dear Mr Singal
I want to sale my property in India and planning to buy a flat in Dubai, so it will my capital gain is tax able.
Regards
Baljeet Singh
Sir I have two residential properties in pune and one in thane. I want to sale thanes property and want to invest that money in new property in thane only. So wheather I wil be liable for capital tax gain??
Selling a residential property and buying residential property in the specified time frame with the sale proceeds does not attract capital gain tax.
please tell me
like in India i have commercial property on pagadi basis.
and want to sell this and avail long term capital gain
then how it is possible.
please reply me on my e mail address
[email protected]
thank you
Dear Mr. Singal,
Nice article. It is nice to get your appropriate opinion.
I inherited 25 lakhs in 2016 as my share from a property owned by my Father, originally purchased in 1990 and sold in 2016. Can we get indexation benefit to calculate Capital gain?
Can I buy another residential property to save Capital gain tax within Financial year 16-17, even if I already have two residential apartment in my name ? Is it under section 54 or advise any other section.
Please advise,
Ashwin
Yes, you can get indexation benefit, and also can buy residential property to save that tax. It is under section 54. If you have sold residential property then you can buy any other residential property, and it doesn’t matter if you already own some residential properties in your name. The restriction is only when you have sold non-residential property (like land/Commercial), in that case you should only have only 1 property in your name besides the one which you want to purchase new to save tax.
One thing is not clear from your question – Have to inherited the property and then sold it or first the property was sold and then you have inherited the money?
Dear Mr. Singal,
Thanks for your reply and advise. The property was residential and was first inherited by self and sibblings in 2014 after demise of our father and was sold in 2016 and my share dividing equally is around 25 lakhs without indexation.
Ashwin
Fine. You can buy either buy a new residential property or invest in bonds to save capital gain (calculated after indexation).
Dear Mr. Singal,
I am in a cofused situation & feel only an epert can guide me to resolve the problem.
I had sold my existing flat in November, 2011 & imidiately booked “under construction” flat
by paying all capital gains earned as part payment, Now tghe real problem is the possesion, which was to be given within two years, has got delayed & there is no hope to get the ppssesion for next two years or so.
Om taking up the matter, the builder ha asked me to wait or as an alternate he has offered me to surrender the booking against refund amount with 4% p.a. intrest for tyhe 3 years.
now i want to know, this being geniune problem, what will happen to my capital gain tax benifit availed by me in the Finanacial year 2011-202. please advice if i will be liable for any penality, additional tax or intrest etc.
thanking you in advance,
R.U.Bhatia
I believe you should better consult a CA in your area and have his opinion. In my view the tax benefit claimed should be reversed and yes there should be some interest liability too, as the property construction was not completed in next 3 years as mandated by IT act.
Dear Mr. Singhal,
Sir, Myself and my wife owned a two bhk flat in Chennai for Rs.5.35 lakhs in 2002 being the joint owners that myself being the first owner and my wife second. We jointly sold this property for Rs.20 lakhs which was duly registered in November 2016. I hope the capital gain is Rs.14.50 lakhs for which either new property should be purchased latest by 31st July 2016 as the income from property will be calculated for the financial year ending March 2016. It is hoped that the new property will be purchased before 31st July 2016 for Rs.20 lakhs and more, or if not possible, I am sure the said capital gain of Rs.14.50 lakhs should be invested in a capital gain account in a nationalized bank before 31st July 2016. Anyhow the new property will be purchased in the name of my wife as a purchaser and I will not be a party to the purchase. Can she do it please. Secondly Can the capital gain account be opened by my wife alone or by me only or both. If both can my wife withdraw the money from the capital gain account for purchasing the new property. Please clarify on priority basis.
Thank you
Karthik
First thing first…let me start by clarifying that i am not a tax expert so you should better consult a CA in your local area and have his opinion.
See, the capital gain would not be Rs 14.50 lakh, as you have not accounted for indexation. In rough calculation if your property was purchased in FY 2002-03, and sold in 2016-17, then your indexed cost of property comes out to be 13.46 lakh, and thus capital gain would be Rs 1.04 lakh, on which you have to pay tax @20%. This 1.04 lakh again is not a one person income , it has to be divided in you both…
So first understand this and decide what steps you want to take in future
Respected Manikaransir,
I have one question, we are planning to buy a New commercial shop
one of the agent asking to us in future after 3 to 5 years whenever you sell your commercial shop you can not buy New house of those money which you get from your commercial shop selling.
Our question is that Can we buy a New home against commercial shop selling amount.
Please guide us.
I sold a shop which is in my wife’s name ,is it necessary to invest it in residential property.
You can either buy a residential property or can buy 54EC capital gain bonds. this is all to save capital gain tax. if you want to pay tax no need to invest anywhere
My wife has taken lone from me to purchase the residential property at Noida the same is under construction. Now she has sold her commercial property at Vadodara after 12 years and from these money received she is refunding the lone take from me for purchase of residential property.
Please inform how we can save capital gain tax. Can I invest these amount for purchase of property and save Capital gain tax or only she has to invest
See, what capital gain taxation on sale of property says that either you buy a house within 1 year before the sale or within 2 year after the sale or construct a house within 3 year after the sale of property. Now if your purchase of house is 1 year before the sale then your wife may be eligible for tax benefit by repaying the loan to you, but I don’t think that buying under construction property satisfies the requirement.You should better consult a CA or Tax lawyer on this.
Dear Sir,
To save capital gain tax from residential property ,is it necessary to invest the capital gain only in one of the two options ie either in buying or constructing a residential property or purchasing capital gain bonds ?
If the capital gain is 80 lakhs can one not save tax completely by buying/ constructing a house as well as buying NHAI or REC capital gain bonds? If investing in both is possible then can one save tax fully by buying bonds worth 50 lakhs and constructing house with 30 lakhs thus investing 50+30 = 80 lakhs fully.
Pl also let me know if there is any ratio to be applied if investment is both in bonds and constructing a house.eg 60% of amount invested in bonds and 40% of amount invested in construction>
Shall be immensely grateful for your early reply.
You can do both. Buy bonds worth Rs 50 lakh (since this is the maximum limit), and use rest to buy or construct property.
Dear Sir, I sold a residential property and within 2 months purchased a residential flat and within 6 months invested in NHAI bonds? However, all sale proceeds were deposited into my Savings account initially. It is from here that I purchased and invested.
Is it necessary to deposit sale proceeds in the “Capital Gains Account Scheme” account to avail the exemptions under sec 54? Can the sale proceed not be deposited in regular savings account and then purchase residential property or invest in NHAI? Please advise.
Replied
Dear Sir, I sold a residential flat and purchased another residential flat within 2 months and then invested in NHAI within the 6 months of the sale date. The sale proceeds were transferred to my regular savings account.
Please advise, if it was necessary or is it mandatory, to transfer the sale proceed to “CAPITAL GAINS ACCOUNT SCHEME” account to avail the exemptions under sec 54. Please advice.
Yes, it is important to put the sale proceeds in CGAS, but that is mainly required when the assessee is going to delay the house purchase/construction decision. Since you have completed your tax saving transaction within 2/6 months of sale transaction. so its ok
Thanks Sir, for your response. Appreciate it.
Does laws for a sale of property that is not residential differ? i.e. for land/plot in an industrial area?
And what are the laws when the residential status of the owner/seller is an NRI.
Does NRI’s have any exemptions that they can avail for residential/non-residential properties?
Yes… laws differ in the case of Residential and non-Residential property. No exemption available to NRIs
Can I invest the complete sale amount of non residential property in parts I. e. some portion in property and rest in bonds under 54EC
I have this query. Much appreciate, if you can provide guidance.
1. Sold one flat in Dec 16.
2. Bought one flat : booked under construction in 2013, registration done in April 16. Q1: will this qualify as 1 year before? Q2: if yes, can capital gain benefit be claimed, even when holding another flat(s).
I guess yes. House is considered to be bought on possession date or Registration date, whichever is earlier. In your case, you have done the registration on April 16 and I assume have not taken possession yet, so this should be considered as before 1-year purchase and you can claim the Capital gains benefit here. Still, your Tax person should be in line with our thoughts, so better to consult one.
Hello,
I had sold my commercial shop and invested only the capital gain part in bonds of NHAI u/s 54 EC. Recently it came to my knowledge that the whole consideration had to be invested in them as it’s a commercial shop. My question to you is
1) Can I invest the balance amount in the bonds now.
2) if there is a NO for query 1 then will they calculate on prorate basis on the amount invested
1.) Bonds to be purchased with in first 6 months of the sale. If 6 months are over, then no you cannot buy bonds now.
2.) Yes
Hello sir ,
We will be selling our shop in august. I would like to ask you that do we need to invest the complete sale amount in bonds like NHAI or REC to make it tax free?
Or
Can we use partial amount to construct the house & rest invest in bonds ?
For eg, suppose 20 lakhs is sale amount then, can we use 15lakhs to construct house & rest 5lakhs invest in bonds to make it tax free.
yes, you can do that. The partial amount for house construction (Not renovation) and partial for bonds purchase (maximum amount is Rs 50 lakh).
Dear Sir
i have got a flat thru a settlement deed dated june 2004 from my father.He retained life interest .He has passed away in Jan 2017. From what date do i calculate cost of acquisition index to sell the property now.
Hello sir,
I had purchased a commercial property a year ago now i want to sell the property and settle the loan. I want to know will i be charged any Property gain tax. If yes what percentage i will be charged and will it be on the gain or the selling price of the property.
Regards
Thank you.
Hello sir,
Last year i had purchased a commercial property, now i am planning to sell my property.
I had two queries.
1) Will i be liable to pay property gain tax.
2) will i be liable to pay property gain tax on the gain or the selling price of the property.
3) what will be the percentage of property gain tax.
Regards,
Thank you.
1. Yes
2. On the gain
3. Since it would be short term gain, so will be added in your income and taxed as per IT slabs
Hi sir read your article and questions & answers, it’s very useful.
It will be very greatful by u if u reply my query
My question is I have 1 small residential property since 1995 I sold it now and took home loan and bought 1 big residence .I also have 2 commercial properties since 1985. I m planning to sale these 2 commercial properties and payoff home loan from the consideration of 1property and buy another commercial property from consideration received from sales of commercial property. how can I save my capital gain . Plz advise
Dear Sir, First let me congratulate you for such a nice article on the subject.
My query relates to sale of residential property by my mother. My mother wishes to sell her house and wishes to buy a residential plot. The sale proceeds from the house is just sufficient to buy the plot only. Construction if any , will have to be done by other savings or loan. What will be the capital gain tax implications in such a case Sir? How can it be saved?
Capital gain from the Residential property cannot be saved by buying a residential plot. If you can buy Plot from other savings and use the gain amount part for buying the plot and part for constructing the house with in next 3 years of the sale then that can be shown as money used for buying and construction of the house. You will have to keep the proceeds in a capital gain savings account.
It’s just usage of money in a mixed manner and planned way
Dear Mr.Singal,
i would appreciate yr advice how to save long term capital gains tax on my commercial property bought in 2006. i am retired NRI still out of India and already having one residential flat in India given on rental basis & another flat given to my daughter -both are on my name purchased from my NRI funds. At present i am not paying any income tax in India since it is within the limit of 2.5 lacs per annum.
on selling my existing commercial property, is it essential to buy residential property out of sales proceeds or i can buy another commercial property within 2 years and avail capital gains tax exemption?
is it necessary that i should use this new residential property for myself or give it on rent without losing capital gains tax benefits under section 54 & 54f ?
Can 1% TDS deducted at sale of property be claimed back if capital gains are invested in another house in same financial year?
Yes. If on self-assessment you find that there’s no tax liability on you then this 1% can be claimed back as refund
Very nice and helpful article !! Is it possible to save capital gains tax partly by purchasing a new house in the stipulated period and partly taking bonds? e.g. if capital gains is 50 L , invest 20 in new flat and buy bonds for remaining 30 L ?
Yes, it is possible.
Sir I sold commercial property. And sale proceeds are 57 lacs but capital gains are 24 lacs. Sir as you told above that to get exemption under section 54f, I have to invest entire sale proceeds (not only capital gain) in new residential property. Sir now my question is suppose I have invested only 3lacs in construction of house till date. Now I want to deposit in to capital gain account scheme before due date. So in this case do I have to invest (whole sale proceeds) or (sale proceeds less 3 lacs) or only capital gains amount.
If you want to deposit in capital gains account scheme, that means you have the intention to buy or construct the residential property in coming 2/3 years. Else you have to buy Capital gain bonds. The money (3 lakh) you have spent should be towards the buying or construction of the new property. If this is what you have done, then you may deposit Rs 57-3 lakh, else Rs 57 lakh as complete sale proceeds.
Also whatever you will do, please keep your tax person in confidence
Sir
I have one one unauthorised shop in Thane w purchased on november 2013 fir ₹ 950000
It has completed 3 years
So what is appreciated cost of this amt. Today…non taxable
Pl inform me
Ur above article is nice one
Thnx
I have one one unauthorised shop in Thane w purchased on november 2013 fir ₹ 950000
It has completed 3 years
So what is appreciated cost of this amt. Today…non taxable
Pl inform me
Ur above article is nice one
Thnx
I don’t get your question, Prakash. Unauthorised means? and how would i know the appreciated cost, you have to check the market rates. If you are asking about the Indexed cost of acquisition then please refer to the cost inflation index numbers mentioned in the article. Thanks
My father sold his house in Oct 2016 and deposited the money from the sale into a capital gains account.
My father and I booked another property as joint owners and paid 30% of the amount to the seller as an advance from my father’s capital gains account and got into a agreement-to-sell with the seller.
The plan was that my father would reinvest the amount received from the sale of his property and I was to take a loan for the balance amount. Our share of the property would be proportional to the amounts we contributed. My father passed away last month before we could register the property. I have my mother.
Please let me know if my mother should replace my father as the joint owner with me for the new property for us to save the capital gain tax resulting from the sale of my father’s house or how should the transaction be handled moving forward to avoid the capital gain tax.
There should definitely be a solution. But I think you should better contact a CA or Income tax lawyer.
Sir, I have a residential house and an office for last 10/12 years. If I sell my office and earn capital gain, can I get tax exemption if I keep sale proceeds in capital gain account and construct a house within 3 years therafter?
Bharat
Yes. Since you want to sell commercial property, so you have to invest the complete sale proceeds to get the complete LTCG exemption.
DEAR SIR ,
MANIKARAN SINGAL JI ,
NAMASKAR.
MAINE 2008 ME AEK SHOP 2 LACKS KO KHARIDA TTHA , AUR USSE 2017 ME MAINE 17 LACKS KO BECH DIYA HAI . ABB MUZE KOIEE NAYI PROPERTY NAHI KHARIDANI HAI . TTO MAI AB TAX KAISE BACHAU ?
SHOP KABHI BHI RENT SE NAHI DIYA TTHA . YA USS SHOP KA KOIEE DUSARA BENIFIT NAHI LIYA HAI .
KISINE KAHA KI YE LONG TERM CAPITAL GAIN NAHI MANA JAYEGA ?
KYA YE SHORT TERM CAPITAL GAIN HAI ? AGAR HAI TTO MAI ABB KYA KARU ?
TAX BHARANA PADA TTO SHAYAD BAHUT JYADA HOGA , MERE HATH MEE KITANE RUPAYE RAHE JAYENGE ?
DHANYAWAAD .
Yes Long term capital gain ka case hai. Aapko tax bachane k liye ya to capital gain bonds lene chahiye ya koi aur residential property. Kyoki yeh gain ek commercial property se aaya hai, so aapko pura 17 lakh lagana hoga bonds mein, jo 3 saal k liye aapka paisa block kar dega.
DHANNYAWAAD MANIKARAN JI .
Dear Sir,
I have a shop at Panvel which was registered with a cost of Rs.30L in 2013 July. After that i had spent Rs.5 L as maintenance charges+Renovation. Presently, I am going to sell the shop in 2017 Dec. My queries are:
1. What will be the Capital gain & Its actual tax amount?
2. Can I re invest the amount in Residential Property (Selling property is Commercial)?
3. If I am eligible for above , all the selling amount (60L) OR only the Capital Gain amount need to invest to get free from Tax burden? – As I am planning to park some amount in Mutual Funds too.
4. If I am not planning to invest in residential or any commercial, Can I invest all amount (60L) in Mutual funds ? If so , can I get any tax free consideration?
5. To avoid capital gain Tax, I came to know to buy 54EC bonds. In this case also, weather I want to invest all selling amount (60L) or Capital Gain amount to get tax excemption?
Request to reply on same
1. The purchase cost and even the renovation cost have to be indexed before reaching out the capital gain amount. You have shared the year of purchase but not the year of renovation. I would recommend you to consult some local CA/Tax person and show him the papers to get the actual gain amount calculated.
2. Yes. Buying residential property will help you in saving capital gains tax.
3. Since you have sold commercial property, so this case comes under section 54F, and you have to buy residential property with the complete sale proceeds to save tax
4. Pay tax first and then you may invest the remaining amount in Mutual funds.
5. Complete sale proceeds to be invested in bonds in your case. The maximum limit of bond investment is Rs 50 lakh, so you have to pay tax on the remaining 10 lakh.
sir
i sold property in my name and now wat to buy property in my wife name from that sale proceeds can i get exemption in capital gain
sir
i sold property in my name and now want to buy property in my wife name from that sale proceeds can i get exemption in capital gain
I have a property where in ground floor is used for commercial purpose and 2 floors are used for residential. If I sell the property how will the ltcg be calculated. What bifurcation will be available
It’s better if you consult your CA on this.
Dear Sh. Manikaran Singalji,
Your article and replies are exhaustive and highly informative but I need to know my query as it is not covered above threads. I have a property in Delhi measuring about 250sq yd. I am intending to sale a part of it and build a house on the rest of the area (by demolishing the old structure fully).
The plot was bought in 1971 & the house was built in 1985 (no proofs/receipts of expenses on construction is available with me now). My queries are:
1. How will the LTCG be affected and will I get any benefits for this construction?
2. What proof does the IT dept need for the new construction part(as the same builder will do both i.e. buy, register his part and construct new for the same amount, no money being given or taken)?
I hope you will resolve my issue and advise as early as possible since your all advice are quite exhaustive and prompt in guiding in resolving LTCG issue. If possible kindly email the response or inform when the reply is put on your blog. I am a senior citizen, if that is relevant. Thanks.
With best regards,
Dr. M. Goswamy
Hello Mr Goswamy
Though I think you should better consult a CA on this but below is my understanding of your query.
When you sell part of your land that will bring in some capital gain, which calls for taxes. If you use the Indexed capital gain money in the construction of a house in next 3 years of sale then your tax liability should be adjusted in this.
No Idea on Proofs. I believe there must be documents like sale deed, other bills of material and costs paid to the builder that should suffice.
Dear Sir,
I want to sell a residential property in three person (should i sell them in a single deed ? )and against it and i want to bye 3 residential plot (attached to each other) by three different persons. So in this situation what should i do to save capital gain tax under section 54?
You cannot save long-term Capital gain tax by buying a residential plot. You either have to buy a Residential house/Flat or have to buy land and construct a residential house on it.
Selling residential property in joint names brings tax liability on all 3 owners. So every person buying another residential house should suffice the tax saving requirement.
Do keep a tax lawyer or chartered accountant in the loop to have a better guidance on these transactions.
dear mr Manikaran Singal doing a v good job. i own a plot and given to builder to develop as commercial as per sanctioned plan, written partnership with ratio further enhanced for compliance of delay reconstituted partnership with an mou -for his liability to deal with public authorities, for all purposes for now and arising in future if any, incl expenses etcs. Non compliance will entitle me to claim losses so incurred. one of the block without compliance cert from dev authy ,we jointly sold in 2016 and the C A calculated the tax and it was paid. NOW THE C A SAYS THAT, WE HAVE TO PAY REVISED TAX @30% , as that time he calculated @15% treating it as business asset transaction. And since the builder not yet obtained compliance ,it need to be regd with RERA WITH FEE. YOUR VALUABLE ADVICE PL and suggest steps as i live at hyd, and property is at D DUN.. THanks regds Prof h m k
Hello Prof. Kulshreshtha
I am afraid I may not be able to guide you on this. Your CA would only be the better Judge
Regards
Sir,
1. Can I purchase residential property through power of attorney to save capital gain tax.
2. Can I purchase a plot / house / flat in an unauthorised colony through POW.In such case shall I get benefit of capital gain tax
Mr. Sharma, I have no Idea on your queries. Please consult a Good CA on this.
Thanks
SIR,
I WANT TO SALE A RESIDENTIAL PROPERTY AND PURCHASE A COMMERCIAL PROPERTY, CAN YOU PL ADVISE LONG TERM CAPITAL GAIN TAX ON SALE OF THE PROPERTY? THE NEW COMMERCIAL PROPERTY I AM PROPOSING TO PURCHASE IS VALUING MORE THAN THE SALE PROCEEDS OF THE RESIDENTIAL PROPERTY.
You cannot save Long-term capital gain tax on the sale of residential property by buying a commercial property.
I PURCHASE SHOP IN 1994 RS 2.00 LAKES AND START A BUSINESSES IN 1994 NOW I AM PLANING TO RETIRE AND SHIFT WITH MY SON , NOW SHOP PRICE IS RS 60.00 LAKES I WANT TO PURCHASE A FLAT WHITEN SAME YEAR AT RS 65.00 LAKES . PLEASE ADVISE INCOME TAX ACT .
THANKS & REGARDS,
SANTOSH
Selling shop for 60 lakh, where the indexed gain would be less; and later buying a residential property for Rs 65 lakh will be helpful in saving the long-term capital gain tax on the sale of the shop.
Hi
My wife sell a commercial shop of X amount. Y is the long term capital gain on that.
now i brought a property of which i got the possession in 2013 , ,and now registry of that is due in April 2018.
Can we get registered flat on my wife name , and invest the long term capital gain amount that arrive from sale of shop in to the registry amount of the Flat. is this possible to skip the long term capital gain tax in this way?
When was the Commercial Shop Sold? in which financial year?
Dear Sir ,
I purchase a Residential property in 2010 for Rs 45 lacs.
I sold this property in 2017 for Rs 70 lacs , and purchased a new residential property in 2017 for Rs 1.37 cr
Please let me know incase there is any LTCG implication.
Thanks
Subhankar
Your Actual LTCG comes to Rs 35 lakh and Indexed should be lesser than this. Your Purchase of residential property is far higher than the LTCG amount. So there should not be any LTCG Implication. Still these transactions needs mention in your Computation of Income tax
Dear sir, In April lastyear in 2017 I bought a flat for 50 lacs.Now I am selling my Pagdi house for 49 lacs in April 2018 whose agreement is already signed by all the parties but it is still not registered.Can I claim long term capital gain tax N within what time the agreement be registered so that I can claim LTCG .Thanks
You bought for 50 lakh and sold for 49 lakh. There is no gain but the loss of 1 lakh.
Besides this, you bought in 2017 and sold in 2018, thus this is short-term time frame not long-term
Dear Sir, In april 2018, If a 3 person received the house as gift from his parents, what will be the index value of cost of acquisition and sell it in same month and recieved the money divided into equal parts, then every one invested the amount for purchase of commercial property which is the less than of sale value. Then how much amount of capital gain tax will payable to every one. Is there any time limit for paying the LTCG TAX
What I am assuming is that Gift was given through a registered gift deed and then all the siblings have sold the House, divide their shares and bought commercial properties.
Indexed cost of acquisition would depend on the Cost and Year of purchase of the Residential property. But please keep in mind that buying commercial property is not an eligible transaction to save long term capital gain tax.
Dear sir,I have 25 lakhs in capital gain account scheme.I would like to know if I can use 20 lakhs to buy land and 5 lakhs to construct house in that plot
Yes, Land is a part of the overall house and generally, a major part of the house purchase goes into a land only. Still, yours is a valid question, and I think you should better consult with your CA on this subject
Dear Sir, Thanks for your reply, as the property was given to 3 person as per will on death of father, and sell the residential property after 3 years and purchase the commercial property by all 3 person, Please tell me it is treated long term capital gain and pay the tax to all person individually and how much
Hema, there is no provision to save Long-term capital gains tax on buying of commercial property.
Dear Singal Ji, Your discussions are very interesting and informative. My wife and I have two joint bank accounts (Either or Survivor type), one with her name as first holder (A/C A) and the other with my name as the first holder (A/C B). We have sold two properties which were exclusively under my wife’s name and also sold another property under our joint names. We can justify that my wife’s shares in the investments into the properties were actually earned by her, when she was working as a schoolteacher. We have then purchased a residential property under our joint names. The proceeds of all the sales were deposited in A/C A and all the payments for the new purchase were also made from A/C A. My queries are, considering that the accounts are joint accounts:
i) The capital gains from my wife’s portion of property sales proceedings made up almost 50% of the new house purchase cost, hence technically she need not invest much more for 50:50 share. Since we have spent my 50% share for house purchase also from joint account A/C A, can we consider that the portion of my investment which has not actually been transferred from A/C B to A/C A is accruing interest (FD & Savings) in favour of my wife?
ii) Though TDS has already been deducted U/S 194A (in AY 2018-19) in my name, can I consider in our current ITR’s that some of the money, equivalent to my share above, and the share of interest thereon actually belongs to my wife and she is the one who is liable to pay tax on that?
iii) Do I now actually have to transfer the amount due to my wife, such that from next year onward the interest income gets taxed in her name?
Regards
S Sarkar
Dear Mr Sarkar
Thanks for spending time and giving details of your Transactions. But I am afraid since there are so many links and connected transactions so to have a better guidance you should better consult a tax expert in your area and explain the query to him/her.
My understanding and replies to your question may be wrong.