sir I have purchased site maesuring 40x60 ft in 2013 for Rs 10 lakhsand consructed a house in 2013 incurring 20 lakhs ,with following all rules by the local authority by paying all the taxes.0n 23.4.2023 i have sold the house for 60 lakhs.on 28.4.2023 i have purchased site for Rs 23lakhs without depositing the amount in capial gain account.kindy advice me whether i can claiim capital gain for purchased site as per sectio 54 of income tax.i do not have any docuentary proof for amount incurred for house construction and can i claim house improvement as capital gain exemptions.thank you sir.hope you will reply at an earliest.Iam a senior sitizen and an agriculrist

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.

Ans: Based on the information you provided, the capital gain on your property sale would be Rs. 6,395,000.

Here's a breakdown of the calculation:

Factor Amount
Sale price of the property Rs. 6,600,000
Cost price (including registry etc.) Rs. 2,05,000
Renovation expenditure (capped at Rs. 2 lakh) Rs. 2,00,000
Indexed cost price (not available) Rs. 2,05,000 (assumed)
Capital gain Rs. 6,395,000


Please note that this is an estimated calculation. The actual capital gain might differ depending on the following factors:

Indexed cost price: If you have data on the inflation index for the period you held the property, you can calculate the indexed cost price which can reduce the capital gains.
Actual renovation expenditure: The calculation considers a maximum deduction of Rs. 2 lakh for renovation expenses. If your documented renovation expenditure is less than Rs. 2 lakh, the capital gain will be slightly higher.
Other selling expenses: Selling expenses like agent commission or brokerage fees can further reduce the capital gains.
It's recommended to consult a tax advisor for a more precise calculation considering your specific situation and claiming any applicable deductions. They can also advise you on the tax implications of the sale.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You sold a property in June 2024 for Rs 30 lakh. It was bought for Rs 1,15,000 in 1994. Let's evaluate if there's a capital gain.

Indexed Cost of Acquisition

The property purchase cost will be adjusted for inflation. This is called the Indexed Cost of Acquisition (ICA). The ICA is calculated using the Cost Inflation Index (CII) provided by the Income Tax Department.

Calculating Indexed Cost

Calculate the ICA to understand your capital gain. Since we won't use specific formulas here, you can consult a Certified Financial Planner to get the precise ICA value. This helps in determining the exact capital gain.

Long-Term Capital Gains (LTCG)

Since you held the property for more than 24 months, it is classified as a long-term asset. The profit from the sale, after adjusting for the ICA, is your Long-Term Capital Gain (LTCG).

Tax on LTCG

LTCG is taxed at 20% with indexation benefits. However, there are ways to save on this tax.

Investing in Another Property

You can save on capital gains tax by investing in another residential property. This is covered under Section 54 of the Income Tax Act. If you buy a residential house within two years or construct one within three years, you can claim exemption.

Investing in Capital Gains Bonds

Another option is to invest in Capital Gains Bonds under Section 54EC. These bonds have a lock-in period of five years and provide tax exemption on the gains. The maximum investment limit in these bonds is Rs 50 lakh.

Purchasing a Shop

Buying a shop will not provide capital gains tax exemption under Section 54. The exemption is only for residential properties. If you sell a residential property, you must reinvest in a residential property to save on capital gains tax.

Other Options to Save Tax

Residential Property: Invest in another residential property within two years.

Construction: Construct a new house within three years.

Capital Gains Bonds: Invest in these bonds within six months of the sale.

Final Insights

To save on capital gains tax, reinvest in a residential property or Capital Gains Bonds. Purchasing a shop will not help in saving tax on capital gains. Consulting a Certified Financial Planner can help you navigate these options efficiently.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in