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Plot owner selling at 80 Lakhs: Can I save tax on long-term capital gains?

Ramalingam

Ramalingam Kalirajan  |9189 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 06, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Aug 06, 2024Hindi
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I bought a plot in 1996 at R.1.6 Lakhs. It is likely to fetch 80Lakhs if I sell. 1. Can I invest the sale proceeds in buying an apartment and save tax on long Term Capital Gains? 2. If so, what is the lead time I have to buy an apartment? Thanks.

Ans: Capital Gains Tax Analysis
Property Purchase Details

You bought a plot in 1996 for Rs. 1.6 Lakhs.
Its current market value is about Rs. 80 Lakhs.
This shows a significant increase in property value.

Capital Gains Calculation

Your capital gain would be around Rs. 78.4 Lakhs.
This is the difference between purchase and sale price.

Capital Gains Tax Analysis
Property Purchase Details

You bought a plot in 1996 for Rs. 1.6 Lakhs.
Its current market value is about Rs. 80 Lakhs.
This shows a significant increase in property value.

Capital Gains Calculation

Your capital gain would be around Rs. 78.4 Lakhs.
This is the difference between purchase and sale price.
It's a long-term capital gain as held for over 24 months.

Tax Saving Option

Yes, you can save tax by investing in a new house.
This is allowed under Section 54F of Income Tax Act.
You need to buy one residential house in India.

Time Limit for Purchasing New Property

You have two options for the time limit.
Buy within 1 year before the sale of your plot.
Or buy within 2 years after the sale of your plot.

Construction Option

If you plan to construct a house, you get 3 years.
This 3-year period starts from the date of sale.
Construction must be completed within this time.

Important Conditions

The entire sale proceeds must be invested in new house.
If partial amount invested, tax exemption will be proportional.
You shouldn't own more than one house on sale date.

Capital Gains Account Scheme

If you can't buy immediately, there's a safe option.
Deposit the money in Capital Gains Account Scheme.
This gives you time to find a suitable property.

Tax Implications

If conditions are met, you save tax on entire gain.
Any amount not invested will be taxable.
Tax rate on long-term capital gains is 20% with indexation.

Professional Advice

Consider talking to a Certified Financial Planner.
They can guide you on best tax-saving strategies.
This ensures you make the most of your property sale.

Finally

You have a good opportunity to save tax.
Plan your property purchase within the given time limits.
Proper planning can help you save a significant amount.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
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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Mahesh

Mahesh Padmanabhan  | Answer  |Ask -

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Sir, On 14-June 1994, I acquired a flat (tenement) in my own name for Rs. 2,98L. In April 2015, I had to spend Rs. 4.15L on general renovation of this flat. Now, I plan to sell this tenement and wish to invest its sale proceeds within two years of the sale in buying a ready possession flat in another city. My queries are follows: 1. Can I invest the sale proceeds in buying two flats in the same society of the new city or do I have to necessarily invest in one property only? 2. Can I add the name of my spouse and my son also as co-owners in the new property(s) even if their financial contribution is nil? 3. Can I add the name of my spouse and my son also as co-owners in the new property(s) in case they also partially contribute financially in the purchase of the new flat(s)? 4. What is the present applicable Indexed Cost of the flat planned to be sold by me?
Ans: Hi Thomas
As the base year for Cost Inflation Index (CII) has been reset to 2001, you may need to get a valuation done through an approved valuer to identify the value as on April 1, 2001. If this value is higher than Rs. 2.98 Lakhs then you could use that as the cost.

As regards the general renovation amount spent, it may not be allowed to be added as cost of the property as generally tax officers are not dispensed to allow it.

W.R.T. your decision to reinvest in a ready possession flat within 2 years, please note that if this investment is extending beyond 6 months OR due date for filing your tax returns (whichever is earlier), you would need to open a Capital Gain Account Scheme (CGAS) account with a nationalized bank and park the capital gain amount in it for reinvestment.

Now answering your queries

Query 1 - If the capital gain amount does not exceed Rs. 2 Crores then you could reinvest in 2 residential units. This however is a one time option and cannot be used again in any other year.

Query 2 - Yes you could add their names but they would be treated as name-sake owners and for all purposes of taxation, you would be taxed singly.

Query 3 - You can add their name as proportionate owners to the value of their contribution. The taxation of income in that case would be based on their contribution

Query 4 - The answer to this would depend on the valuation report. Nevertheless, you could derive the indexed cost yourself by multiplying a factor of 3.48 to the cost. An example would be as follows:

Suppose the cost is Rs. 2.98 Lakhs
Indexed cost would be Rs. 2.98 Lakhs x 348 / 100 OR 2.98 Lakhs x 3.48 = Rs. 10.37 Lakhs

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Hardik

Hardik Parikh  | Answer  |Ask -

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Asked by Anonymous - Jul 20, 2023Hindi
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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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Janak

Janak Patel  |52 Answers  |Ask -

MF, PF Expert - Answered on Feb 21, 2025

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Hello Sir, I am 48 years old working in a software company with the monthly income of 2.5lakhs. I have 2 independent houses in which I am planning to sell one for 1.6crores and take one flat with 1.4Cr to save capital gains. below are my queries 1. Can I use remaining 20lakhs for registration, car parking to save LTCG? 2. If not, I have other house with home loan of 80Lakhs. Can I prepay the 20Lakhs for other house to save LTCG? 3. the existing house sale might conclude by April 2025, and new flat registration I am expecting in 2026 April. so the full amount to the builder will happen only in April 2026, can I keep the amount in savings account or do a short term Fixed deposit? what are the tax implications on this amount as by the time we file the income tax this deal will not close.
Ans: Hi Karunakar,

You have an House property (independent house) valued at 1.6Cr which you intend to sell and use the amount to purchase another House property (flat) with value of 1.4Cr.
You have raise multiple queries and before responding to them, I will try to explain the capital gains on house property.
Capital Gains = Sale value - cost of acquisition - cost of improvement - expenses incurred for sale (e.g. brokerage).
So first calculate the Capital gains on selling the property, as you mentioned you are selling it for 1.6Cr, so reduce it by the acquisition cost, etc.
Once you have the Capital gains amount, that is the amount you need to re-invest in another property to save tax on it, in your case the Flat (value more than the CG) can be purchase within the next 2 years and no tax will be payable.
So lets assume out of 1.6 Cr, you have CG of 1Cr, then 1Cr reinvested in another property i.e. for your flat cost of 1.4Cr, you will have no tax payable.
So its not the full value of sale, its only on the Capital gains that you need to worry for paying taxes.
The remaining amount of 60lakhs in above example can be utilized as per your requirement.
Responses
1. & 2. You can use any amount above the capital gains for any purpose you see fit - like parking, registration, loan or any other form of investment.
3. If the sale will conclude in April 2025, and your payment of the capital gains towards new flat will be April 2026, then you need to invest the capital gains amount as per below -
- if you are sure of purchase of flat, then within 6 months of sale date invest the amount in "Capital Gains Account Scheme CGAS)" in authorized banks. Amount will be kept in a special FD for 2 years and you can withdraw anytime to pay for your new property.

Within 6 months from sale of property or before tax filing for FY of sale date, i.e. FY25-26 filing date 31 July 2026, whichever is earlier, you need to make a decision.
If you are not planning to purchase another house property, then reinvest in specific long term capital gain bonds from NHAI, REC, some others, these bonds have lock-in of 5 years
If you decide to purchase another property, deposit CG in CGAS as mentioned above.

Interest earned on these deposits in taxable (under head of Other income).

Thanks & Regards
Janak Patel
Certified Financial Planner.

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