• May
  • 13
  • 2012

Budget 2012- Capital Gain Tax on Sale of Residential Property & Tax Planning

CA Srikant Agarwal

Taxability of Capital gain arising on sale of residential property and tax planning thereof after considering amendment made by Finance Bill 2012

We know that investment in residential property or Flats is one of the common investment avenue for individuals.

Here we are trying to summarise the tax implication on sale of residential property and tax planning to save tax on the Capital Gain arising on the sale of such property.

On the sale of a residential property either Short Term Capital gain (herein after referred to as STCG) or Long Term Capital Gain (herein after referred to as LTCG) may arise which depends on the time period for which such property is held. If the residential property is sold within 36 months from the date of acquisition of such property then it will be treated as STCG and if such property is sold after a period of 36 months from the date of acquisition of such property then it will be treated as LTCG.

The amount of Capital gain is calculated in the below format:

Computation of Short Term Capital Gain

Computation of Long Term Capital Gain

Full consideration

XXX

Full consideration

XXX

Less: Expenses on Transfer

XX

Less: Expenses on Transfer

XX

Net Consideration

XXX

Net Consideration

XXX

Less: Cost of Acquisition

XX

Less: Indexed Cost of Acquisition

XX

Less: Cost of Improvement

XX

Less: Indexed Cost of Improvement

XX

STCG

XXX

LTCG

XXX

Less: Exemption u/s 54B/D/G

XX

Less: Exemption u/s 54 to 54GB

XX

Taxable STCG

XXX

Taxable LTCG

XXX

The rate of tax applicable for STCG arising on transfer of residential property would be the slab rates applicable for individuals/ HUF. However LTCG would be taxable @ 20%. If the Total Income (before considering LTCG) is below the maximum amount not chargeable to tax (i.e for Previous year 2012-13, Rs 2,00,000 for individual, Rs 2,50,000 for senior citizen below 80 years of age and Rs 5,00,000 for senior citizen above 80 years of age) then the LTCG would be reduced by such shortfall amount and the balance LTCG would be taxable @ 20% (Sec 112 of Income Tax Act 1961).

An individual can save the amount of tax payable, on Capital gain arising on transfer of residential property, substantially by investing the money u/s 54, 54EC and 54GB of Income Tax Act 1961. It may be noted that section 54GB has been introduced via Finance Bill 2012 and hence is available for Capital Gain arising during Financial year 2012-13 onwards.

The details of Section 54, 54EC and 54GB is as below:

(i) Capital Gains on sale of residential house [Section 54]

Eligible assessees .     Individual & HUF

Conditions to be fulfilled

Ø  There should be a transfer of residential house (buildings or lands appurtenant thereto)

Ø  It must be a long-term capital asset

Ø  Income from such house should be chargeable under the head Income from house property

Ø  A new residential house should be

o   purchased within 1 year before or 2 years after the date of transfer (or)

o   constructed within a period of 3 years after the date of transfer.

Quantum of Exemption

Ø  If cost of new residential house ≥ Capital gains (LTCG only) , entire capital gains is exempt.

Ø  If cost of new residential house < Capital gains(LTCG only), capital gains to the extent of cost of new residential house is exempt

Consequences of transfer of new asset before 3 years

If the new asset is transferred before 3 years from the date of its acquisition, then cost of the asset will be reduced by capital gains exempted earlier for computing short-term capital gains.

Unutilised amount

Ø  The amount not utilised before the due date of filing return shall be kept in Capital gain account scheme of the nationalized bank.

Ø  The amount should be utilized within the prescribed time i.e within 3 years from the date of transfer.

Ø  The amount not utilized within the prescribed time shall be treated as LTCG of the PY in which the prescribed period expires.

(ii) Capital Gains not chargeable on investment in certain bonds [Section 54EC]

Eligible assessee . Any assessee

Conditions to be fulfilled

Ø  There should be transfer of a long-term capital asset.

Ø  Such asset can also be a depreciable asset held for more than 36 months.

Ø  The capital gains arising from such transfer should be invested in a long-term specified asset within 6 months from the date of transfer.

Ø  Long-term specified asset means specified bonds, redeemable after 3 years, issued by the National Highways Authority of India (NHAI) or the Rural Electrification Corporation Limited (RECL).

Ø  The assessee should not transfer or convert or avail loan or advance on the security of such bonds for a period of 3 years from the date of acquisition of such bonds.

Ø  The investment made in specified bonds should not exceed Rs 50 Lacs.

Quantum of exemption

Ø  Capital gains or amount invested in specified bonds (subject to maximum limit of Rs 50 Lacs), whichever is lower.

Violation of condition

Ø  In case of transfer or conversion of such bonds or availing loan or advance on security of such bonds before the expiry of 3 years, the capital gain exempted earlier shall be taxed as long-term capital gain in the year of violation of condition.

(iii) LTCG on sale of residential property Exempted for Investment in Equity Shares of Eligible company [Introduced via Finance Act 2012 and hence applicable from Financial Year 2012-13 on wards ] [Section 54GB]

Eligible assessees: Individuals / HUFs

Conditions to be fulfilled

Ø  There should be transfer of residential property.

Ø  It must be a long term Capital Asset.

Ø  The amount is invested by the assessee for subscription in the equity shares of eligible company before due date of furnishing return u/s 139.

Ø  The company utilizes the amount invested by the assessee for the purchase of new asset (i.e new Plant & Machinery except old used plant & machinery, vehicle, office appliances etc) within 1 year from the date of subscription of shares by the assessee.

Quantum of exemption

Ø  If cost of new asset ≥ Net sale consideration of original asset, entire capital gains is exempt.

Ø  If cost of new asset < Net sale consideration of original asset, only proportionate capital gains is exempt i.e.

LTCG   X   Cost of new Asset

Net Consideration

 Unutilised amount

Ø  The amount not utilised by the company before the due date of filing return by the assessee u/s 139, shall be kept in the specified account.

Ø  The amount should be utilized within the prescribed time i.e within 1 years from the date of subscription of shares by the assessee.

Ø  The amount not utilized within the prescribed time shall be treated as LTCG of the assessee of the Previous Year in which the prescribed period expires for the proportionate amount only.

Consequences if the Equity Shares of Eligible Company is transferred within a period of 5 years

Ø  Short-term capital gains or Long Term Capital Gain as the case may be would arise on transfer of the Equity Shares; and

Ø  The capital gains exempt earlier under section 54GB would be taxable as long-term capital gains in the year of transfer

Practical issue with regard to date of transfer and computation of capital gain:

In all the above section i.e 54, 54EC and 54GB, the period of 3 years, 6 months and due date of filing return u/s 139 respectively is being computed with regard to the date of transfer. Here the date of transfer will be the date on which the possession of the property is given to the buyer. This can be explained with the help of following example:

Example 1: Mr X enters into an agreement to sell the House property on 01.01.2010 with Mr Y for Rs 20 lacs. Mr X handover the possession of the House property to Mr Y on 15.02.2010. Mr Y make the payment on 30.04.2010. The House property is registered in the name of Mr Y on 30.06.2010. When the transfer has taken place.

Ans: 15.02.2010. The transfer is deemed to have taken place on the handover of the possession of the property.

Example 2: Mr X enters into an agreement to sale a House Property on 01.01.2010 with Mr Y for Rs 20 lacs. Mr X received Rs 5 Lacs on 15.02.2010 and on the same day handover the possession of House Property to Mr Y. Mr Y makes the balance payment of Rs 15 Lacs on 30.09.2010. The House Property is registered in the name of Mr Y on 30.12.2010. Determine the date of transfer and capital Gain taxability in the hands of Mr X for Previous year 2009-10 and 2010-11.

Ans: The Date of transfer would be 15.02.2010 since on that day the possession of the property was given to Mr Y .

Capital gain for Previous Year 2009-10:

Full value of consideration                 Rs 20 lacs

Less: Cost of acquisition (Say)           Rs   7 lacs

Capital Gain                                       Rs 13 Lacs

Capital Gain for Previous Year 2010-11:   Nil

Example 3: Mr X enters into an agreement to sale his house property to Mr Y (his tenant) on 01.01.2010 at an agreed price of Rs 20 Lacs. Mr Y paid Rs 5 Lacs on 15.04.2010 and balance Rs 15 lacs on 30.09.2010. The House property is registered in the name of Mr Y on 15.04.2011. What is the date of transfer and capital gain applicable to Mr X for previous year 2009-10, 2010-11 and 2011-12.

Ans: Date of transfer would be 01.01.2010 since the tenant is already is in possession of the property and agreement to sale is entered on 01.01.2010.

Capital gain for Previous Year 2009-10:

Full value of consideration                 Rs 20 lacs

Less: Cost of acquisition (Say)           Rs   7 lacs

Capital Gain                                       Rs 13 Lacs

 

Capital Gain for Previous Year 2010-11:   Nil

Capital Gain for Previous Year 2011-12:   Nil

Regards,

CA Srikant Agarwal

Shared Services (Finance) (ER)

Ph: (033) 2429 3022


27 Responses to “Budget 2012- Capital Gain Tax on Sale of Residential Property & Tax Planning”

  1. R Jhang says:

    I own three residential properties, sold 1 of them in May 2013, with the sale proceeds paid for a new flat in June 2013, expect to get possession by Jan 2015, am I eligible for exemption from long term capital gains?

  2. Satish Kadam says:

    Can I use the sale proceeds of one property (Expecting Long Term Capital Gain) to pay off the other loan amounts ( i.e. Mortgage Loan, Personal Load & Gold Loan).
    What would be Tax implications?

  3. srinivasulu says:

    1.I sold a land property of 1000 yds-sale value 50 Lakhs
    2.I tis inth ename of my US citizen sons-500 yds each
    3.I am apower of attorney for execution of the deed
    4.The sale proceeds are now in my name and my banks
    5.The amount is received in 2011 dec/2012 April/2013 April in three trenches
    Questions
    who has to submit IT return-ME or my two sons separately
    can US citizens submit IT Returns?
    Please advice

  4. Rahul says:

    Sir, i have gained Rs 10lac from sale of property, please advice when will capital bonds from bank, will be issued.

  5. Deepak says:

    I booked an apartment in 2006 at Rs 100(assume) and took bank loan. bank paidup flat cost in instalments until 2011. Got possession in Oct 2012 and paid additional rs 20 (against modification charges, electricity/water govt charges, registration cost etc). bank loan is still outstanding and paying EMI.

    Now selling another property in mar 2013 with LTCG of rs 100. Can possession date oct 2012 be taken as date of reinvestment to offset LTGC (using clause of reinvestment in flat 1 year before selling another house)?

  6. saravanan s says:

    Hello Sir,

    I sold a property for 60 lacs last week .The buyer deposited the amount in my account using demand draft .Now its in my savings account.i am purchasing a flat by next month .(april 2013)

    1) I need to transfer the amount immd to the cgas account?
    2) or how long(maximum) i can keep the money in my savings account?
    3) my purchase of property on april 2013 is for 40 lakhs. can i purchase another property for 20 lakhs to avoid the long term capital gain tax?

    4) or else i need to pay tax for the remaining 20 lakhs?

    thanks in advance sir..

  7. Manish Jadav says:

    hi,

    Very poor explanation
    Very very poor,improve presentation.

    Thanks

  8. Priyanka says:

    Sir,

    I have sold a Flat in sept’12 which I bought in 2002. My queries regarding in saving capital gain tax are:

    1. In calculation of capital gain tax, should I include registration charges (stamp duty), paid in 2002 for purchasing the flat.

    2. I want to buy second house before july’13 to save capital gain. This will be my second house. If I buy second house to save capital gain so in that case, does it mean that I can not buy third house within three years of purchasing my second house.

    Pl. reply as I am struggling hard to understand the complications of capital gain tax saving rules.

    Rgds,

    Priyanka.

  9. sridhar says:

    looks like no one is responding to questions raised.

    Dear Sir,
    What would be the definition of “Purchase” of a new house property to offset LTCG from sale of another house? Is it related to payment made for or posession/registration of the new house?

    I have taken a loan for a flat (Property A) under construction in Mar 2012 (allotment date of flat is 2nd Feb 2012). Posession is expected only in Jun 2013. Now I am planning to sell a flat (Property B) in Mar 2013. Since allotment of Property A was done more than an year before sale of Property B, will A not be considered for benefit of LTCG arising from sale of B? Or will posession of A in June 2013 be counted as “purchase” within the mandated 2 years from sale of Property B? Kindly advise.

    Thank you in advance for your guidance.

  10. Anil says:

    Sir,
    I have booked a prelaunched project flat by paying 2% in Jan 2010(Only reciept was given). In May 2011 I again paid 8% to builder who gave me recipt mentioning Flat number etc(No letter of agreement etc is given to me).
    Now I have sold another flat in Nov 2012, whose proceed’s Capital gain I would like to invest in the above flat.(Investment in purchase of property can be one year prior means financial year or exact time will be calculated) Will I get capital gain exemption

    Anil

  11. Uday Joshi says:

    Dear Sir,
    I have purchased a residential flat in the year 2009 [01-09-2009] by paying 15% amount [Rest of the amount was raised using loan from HDFC] and deed was registered on 30-09-2009. Paid remaining amount in installments. Finally, I got possession on 30-09-2010. Suppose, if I have to sale my property [around 15th of this Month i.e. 15-11-2012] which date will be eligible for calculating long term capital gain tax. [Will it be a Long term or Short term capital gain?]
    Thanking You,
    Yours,
    Uday Joshi

  12. suryakant says:

    I have purchased residential plot in auction on 29-01-10 by paying 25% amount and balance on 31-03-2010.The sale deed was made on 19-04-2010 and registered on 30-04-2010.What date it will be eligible for long term capital gain tax.

  13. SG says:

    Dear Sir,
    What would be the definition of “Purchase” of a new house property to offset LTCG from sale of another house? Is it related to payment made for or posession/registration of the new house?

    I paid the full consideration (except registration charges) for a flat (Property A) under construction in April 2010 to get benefit of down payment. Posession is expected only in March 2013. Now I have sold a house (Property B) in October 2012. Since full payment of Property A was made more than an year before sale of Property B, will A not be considered for benefit of LTCG arising from sale of B? Or will posession of A in March 2013 be counted as “purchase” within the mandated 2 years from sale of Property B? Kindly advise.

    Thank you in advance for your guidance.

  14. Rajagopalan Srinivasan says:

    I had sent this query on 5th Sep 2012; awaiting reply from you:

    “How to calculate Capital Gains tax on inherited property: I inherited partially constructed residential property in Jan 2010; I am unable to complete construciton and wish to sell the same; I have however, done some additional construction on this; please advise me on the/ capital gains tax implications in this case? Should I send any other details to you?”

  15. Rajagopalan Srinivasan says:

    How to calculate Capital Gains tax on inherited property: I inherited partially constructed residential property in Jan 2010; I am unable to complete construciton and wish to sell the same; I have however, done some additional construction on this; please advise me on the/ capital gains tax implications in this case? Should I send any other details to you?

  16. Srikant Agarwal says:

    Dear Mr Bhoopathy (bbhaskaran@hotmail.com)
    From your query what I could make out is that the capital gain arises in Financial year 2010-11 and you have already filed the return and has paid applicable tax on that before filing return.

    In order to claim exemption u/s 54, the amount of capital gain need to be invested in other residential property on or before the due date of filing return i.e in your case it was 31st July 2011. If the amount is not invested in residential property before the due date of filing return then the amount of capital gain as reduced by the amount already invested has to be deposited into LTCG Deposit A/c before the due date of filing return.

    In your case non of these 2 options were exercised so according to my opinion the amount of capital gain tax paid earlier can not be claimed as refund.

  17. Mrs. Usha .Agarwal says:

    Sir,
    I have sold a property , (which was purchased in 1988-89), for Rs. 27,50,000 by regd. deed on
    4-2-2012 after receiving full payment in the same fin. yr.  The CII cost  in fy 2011-12 with that of improvement works out to be 16,07,884. The sales exp. are 81,750. So the LTCG  is 10,35,366.
    I have booked a 3BHK flat, total cost 28,30,000 and have started payment of installments in JUNE 2012 and has paid 2,83,000 as on date,( for which I have proper letter mentioning  unit  and total cost of the flat and payment receipts, as well )  the next install. being due in Sep.2012 and so on.  Now , Please advice me , on :
    (1) WHAT  IS THE ESSENTIAL  AMT. NEED TO BE PAID  , towards purchase of this new property , TO GET  100% EXEMPTION  from paying  Tax  (a) full LTCG amt. of 10,35,366   OR  (b) to the extent of Net sale considerations i.e. 27,50,000 – 81,750 = 26,43,250 ,
    (2) since I have paid only 2,83,000 towards the cost of new flat, till this date ( i.e. extended due date -31 Aug. 2012 – for filling return) and the balance will be paid later, DO I NEED TO DEPOSIT THE BALANCE IN  LTCG DEPOSIT A/C necessarily  , and IF YES, than
    (3)  What should be  the AMT. OF DEPOSIT IN LTCG Dep. a/c –the balance of LTCG – instll. paid i.e. 10,35,366 – 2,83,000 = 7, 52,366    OR   26,43,250 (net sale consid.) – 2,83,000  (already paid amt.).= 23,63,250
    An early advice is requested . since I have to act fast manage the payment of tax or amt. of deposit  much before 31 Aug. 
    Thanks and regards,
    usha agarwal

  18. Bhoopathy Bhaskaran says:

    From: bbhaskaran@hotmail.com

    Dear Sir,  I sold a plot for 12,00,000 rs on Nov 2010. as per capital gain calculation I paid a tax amount of rupees 1,97,000 before 31.03.2011. Now in the past 1 year and 9 months ( from Nov 2010 to July 2012 ) I have built compound wall ,Fixed a gate and  also filled soil for another land of mine for rupees 10,00,000.  
    Now i am also planning to build a house of 1200 sq feet by dec 2012 and complete the construction by sept 2013. My question is can i claim the capital gain tax amount of rupees 1,97,000 paid by me in the financial  2010 – 2011 year.  Because i have invisted the same capital amount in another land where i am going to construct my house now. 
     Please do clear my dought and tell me how to proceed .
    Thanking You,
    Yours,
    Bhoopathy Bhaskaran

  19. Bhoopathy Bhaskaran says:

    From: bbhaskaran@hotmail.com
    Dear Sir, I sold a plot for 12,00,000 rs on Nov 2010. as per capital gain calculation I paid a tax amount of rupees 1,97,000 before 31.03.2011.Now in the past 1 year and 9 months ( from Nov 2010 to July 2012 ) I have built compound wall ,Fixed a gate and  also filled soil for another land of mine for rupees 10,00,000.  
    Now i am also planning to build a house of 1200 sq feet by dec 2012 and complete the construction by sept 2012. My question is can i claim the capital gain tax amount of rupees 1,97,000 paid by me in the financial  2010 – 2011 year.  Because i have invisted the same capital amount in another land where i am going to construct my house now. 
    Please do clear my dought and tell me how to proceed .
    Thanking You, 
    Yours,
    Bhoopathy Bhaskaran

  20. DR.NARESH KUMAR PRABHAKAR says:

    I AM HAVING ANNUAL INTEREST INCOME:Rs.4,00,000/-, I AM A SENIOR CITIZEN, PERMANENT PHYSICALLY HANDICAPED,RESIDING IN A RENTED FLAT AND PAYING Rs.4,500/-PM BUT NOT GETTING A RENT RECEIPT. WHAT WILL BE THE TAX PAYABLE AND HOW I CAN SAVE.

  21. N.S.MADHAVAPEDDY says:

    IS CA CERTIFICATE REQUIRED FOR PART WITHDRAWL OF AMOUNT FROM CAPITAL GAIN ACCOUNT SCHME? Please clarify Sir.

  22. Srikant Agarwal says:

    I have following understanding of your query:
    1) The property was legally transferred to you in Jan 2012.
    2) The same property was sold by you on 18.05.2012 for Rs 58 Lacs.
    3) You booked a flat for Rs 46.52 lacs payable in 10 installments.

    Now based on above understanding, according to me, the tax implication would be as below:
    1) The capital gain would arise in the financial year 2012-13 (since the date of transfer is 18.05.2012) and this will be treated as Long term capital gain (since the property was held by your father from 1987).
    2) Though it is Long term capital gain but at the time of calculation of capital gain indexation benefit for cost of acquisition will not be available as the property has been legally transferred to you in Jan 2012.
    3) The long term Capital gain will be (58,00,000 – 96,300 – 13,700) = 56,90,000/-.
    4) The purchasing of new flat for Rs 46,52,070/- will qualify for exemption u/s 54 and balance Rs 10,37,930/- will be taxable @ 20%.
    5) For saving tax on above capital gain (i.e Rs 10,37,930) ideally you can go for investment u/s 54 (i.e purchase of another house property) or u/s 54EC (i.e investment in certain bonds). Section 54GB is not viable for small investors and is meant for entrepreneurs.
    6) The legal title of new property within a period of 2 or 3 years is not compulsory. If the taxpayer has paid full or substantial portion of it within the period given above, the exemption u/s 54 is available. Again u/s 54 there is no restriction on the number of house property purchased.

    Hope I am able to throw some light on your query. You may also mail me at srikant.agarwal@gmail.com or at srikantagarwal@bharatpetroleum.in for further clarification.

  23. DR.NARESH KUMAR PRABHAKAR says:

    I AM STILL AWAITING YOUR COMMENTS ON MY POSTINGS OF DATED 20TH & 23RD.

  24. DR.NARESH KUMAR PRABHAKAR says:

    My father trasfered his residential property in my name in January,2012.I sell that property on 18/05/2012 for Rs.58 Lacs.Property was purchased by my father on dated 01/11/1987(Amount was paid by me and I am showing in my Income Tax returns since 1988) for Rs.96,300+
    Rs.13,700 as free hold expenses.Actualy my father transfer the property to me in the year 1988 and I am residing their,but that transfer is not located in DDA office’s official record at the time of sale,so my father again given the required transfer papers.Now I booked a flat for Rs.46,52,070 payable in 10 instalments.where I stand and what I do by law ? Plese let me know earliest,what I do. …

  25. DR.NARESH KUMAR PRABHAKAR says:

    My father trasfered his residential property in my name in January,2012.
    I sell that property on 18/05/2012 for Rs.58 Lacs.
    Property was purchased by father on dated 01/11/1987(Amount was paid by me and I am showing the ownership in my Income Tax returns since 1988) for Rs.96,300+Rs.13,700 as free hold expenses. Actualy my father transfer the property to me in the year 1988 and I am residing their,but that transfer is not located at the time of sale,so my father again given the required transfer papers.Now I booked a flat for Rs.46,52,070 payable in 10 instalments.where I stand and what I do by law ?

  26. Srikant Agarwal says:

    It will be taxed in the year in which the amount is withdrawn. If the whole amount is withdrawn then the whole exemption allowed u/s 54, 54EC, 54GB will become taxable and if a part of the total amount is withdrawn then the proportionate amount will be taxable.

  27. PRAKASH KOCHAR says:

    Amount deposited in capital gain account if withdrawn in 2nd year of deposit and not utilised for new asset. In which year withdrawn amount will be taxed?

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