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Selling Flat Before Redevelopment & Booking New One: Tax Implications?

Mihir Tanna |961 Answers |Ask -Follow

Tax Expert - Answered on Sep 21, 2024

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more

Question by PADMAKUMAR on Sep 21, 2024Hindi

Money

Sir, 1) I have a flat which is now under re-development. I plan to sell the flat. So, whether any Capital Gain is to be paid under Income Tax or any other amount is to be paid. 2) I have also booked another flat which has been delayed considerably and now I plan to take refund of the same as the RERA authorities have ruled the case in my favour. Hence, whether any Capital Gain is to be paid under Income Tax or any other amount is to be paid. 3) I plan to purchase a new flat on getting the refund amount but probably before selling the first flat which is under re-development as mentioned in Point (1). So, whether Capital Gain will have to be paid or otherwise.

Ans: In case of re-development, capital gain tax is required to be paid in the year in which certificate of completion is issued for new property but as you are transferring it before receiving completion certificate, you have to pay tax in the year of transfer.

Also when you are transferring under construction property, you are transferring rights which is also capital asset, accordingly you have to pay capital gain on that as well.

Exemption from both of the above said capital gain will depends on certain conditions of Sec 54 and 54F.

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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Hellow Sir, In February, 2023 I had sold a House Property and there is Capital Gain around 15.00 lakh. From the sale proceed I received, I have already bought a housing plot(land) costing Rs.11.00 Lakh, in May, 2023, in a Govt. approved scheme and this has also been registered in my favour. All other formalities for its mutation has also been completed. Since I am planning to construct house on this newly acquired Plot in next 2 years, kindly guide:- (1)whether the amount already incurred in acquiring above Housing Plot would also be considered against utilization of Capital Gain ? (2)the amount I have to kept in the Capital Gain Account Scheme for utilization during construction of House shall be Rs.15.00 Lakh OR Rs.4.00 Lakh (after deducting cost of Plot i.e. Rs.11.00 Lakh) ? Kindly Guide Regards !

Ans: Hello,

I understand your situation and I'm here to help. Based on the details you've provided and the current tax laws in India, here's what you need to know:

1) The amount you've spent on acquiring the housing plot can indeed be considered for the utilization of your capital gain. As per the Income Tax Act, if you reinvest the capital gains from the sale of a property in buying a new property or constructing a new house, you can claim tax exemption on the capital gains.

2) The amount you need to keep in the Capital Gain Account Scheme (CGAS) would be the remaining amount after deducting the cost of the plot from the capital gain. In your case, if you've already spent Rs. 11.00 Lakh on the plot, you would need to keep Rs. 4.00 Lakh (Rs. 15.00 Lakh - Rs. 11.00 Lakh) in the CGAS. This amount should be utilized for the construction of the house within the specified time period, which is 3 years from the date of sale of the original property.

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Question by RATAN - Jul 28, 2023Hindi

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I have some queries regarding tax on sale of my property which I need to show in my Income Tax return in FY-2023-24. I had purchased a flat in Kolkata at a total cost of 8.50 lacs [including registration cost] and registration was done in April, 2004. I had sold the said flat in May,2023 at Rs.31 lacs. My queries are :- 1. Do I need to pay Capital Gain tax on the sale of this flat ? 2. How much tax do I need to pay ? 3. How to show this capital gain income and tax in my Income Tax retirn next year ? Please advise. Regards, Ratan K. Saha

Ans: You need to understand the following things about taxation of your flat:-
1. You have earned a profit (called capital gains in this context) on the sale of your house. So tax is due.
2. However, tax will not simply be 31L – 8.5L. The Govt gives you an advantage of inflation over the years which increases your purchase cost through a process called ‘Indexation’, thus decreasing your tax. Please google and read up on it, or contact a good CA or a financial advisor.
3. You also get credit for registration and stamp duty charges, brokerages paid as also any improvements done in the house of a permanent nature.
4. Please read up on Income Tax Section 54 which also gives out how you can save tax on your final capital gains arrived at.
5. The entire calculations and sale/purchase details have to be shown in the ITR. Most probably you will be filling ITR-2 for this next year but please ascertain the same when you are about to file the tax since rules keep changing.

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Question by Siddramappa - Aug 07, 2023Hindi

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Sir, during this month (August2023) I sold my flat which was purchased by me in 2010. The total sale consideration as per govt guidelines was Rs 5973000/ and was registered at that amount, accordingly TDS at 1% on it was deducted at Rs 59730 and was credited to the govt account. My query is , TDS on sale of property at 1% is applicable in case the amount of sale exceeds Rs 50.00 lakhs . Whether the TDS is applicable on full sale consideration or on the difference amount ie, (5973000-500000)Rs 973000. 2. I had purchased the flat in April 2010 and the purchase price was Rs 3150000/ including Stamp duty, Registration charges and small amount towards interior work. I request you to advise me the applicability of Capital Gain Tax on it. Now I do not want to invest in any new property or in Capital gain bonds, I want to pay the applicable tax and close the transaction. Please advise me about the applicable Tax and close the formalities applicable in this regard. Siddramappa Kudarimoti.

Ans: The TDS (Tax Deducted at Source) of 1% on the sale of property exceeding Rs 50 lakhs is applicable on the full sale consideration. In your case, since the total sale consideration was Rs 5,973,000, the TDS of Rs 59,730 was deducted as per the guidelines. Based on the information you've provided, you might be liable for Capital Gains Tax. Capital Gains Tax is calculated based on the difference between the selling price and the indexed purchase price. The indexed purchase price adjusts the original purchase price for inflation over the holding period.
The tax on long-term capital gains is usually 20% (plus applicable surcharge and cess) after considering any exemptions or deductions available under Section 54 or Section 54F if you are not investing in another property or capital gains bonds.

To close the transaction and fulfill your tax obligations, you should consider the following steps:

a. Calculate Capital Gains: As explained above, calculate the capital gains based on the indexed purchase price and selling price.

b. Pay Capital Gains Tax: If you decide not to invest in another property or capital gains bonds, you will need to pay the applicable capital gains tax. You can do this by filling out the appropriate sections in your income tax return and paying the tax amount.

c. File Income Tax Return: Ensure that you accurately report the capital gains in your income tax return for the assessment year.

d. Keep Documentation: Maintain all relevant documents related to the property sale, purchase, and tax calculations for future reference

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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