Capital gains tax

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Hello, I sold my house on 30 Jan 2010 for a consideration of INR 29 L. Purchase value for this house was 19 L in July 2009. I have been told that I must invest this amount within 2 years of the sale of my house i.e., by 29 Jan 2012. I am also aware that the capital gains stand at around 9 L. I recently made an investment in a housing project and made a payment of 4 L to the builder. This project is now getting delayed and likely to take another 3 years to complete. So, by all means, I am going to move to this new house in the year 2014. Due to this delay, builder is also not taking any further payments from me. Meanwhile, I purchased a flat worth 21 L with 100% loan (I am planning to enjoy loan interest + principal repayment towards this flat in my IT). What is the impact on capital gains tax? Is there a way I can save it, considering that the new project will be delayed.

1 Answers

As the sold house has not been kept by you for more than three years, it will be a short term capital gain. No income tax benefit is available to save the income tax on this gain.

No matter, if you buy new house or not, you will have to pay tax on short term gain.

The gain comes out to be 10L (29L-19L) and whole this amount will be added to your taxable income and taxed as per slab rates (will go upto 30%).

Dear Pankaj, Thanks a lot for taking time to respond to my query. Let me regret for providing one piece of wrong information - I had purchased it in the year 2006 (July). So, the corrected statement should read - Purchase value for this house was 19 L in July 2006. I am sure, this will attract long term capital gains tax. My questions pertaining to this scenario remain the same.

Thanks for the corrected figure.

Now capital gain computation and income tax is shown below:

Purchase Year = 2006-07
Purchase Cost = 1900000
Cost Inflation Index (CII) for purchase year = 519

Sale Year = 2010-11
Selling price = 2900000
CII for sale year = 711

Indexed Purchase price = 1900000 x (711/519) = 2602890
Long term capital gain = 2900000 - 2602890 = 297110
Income tax on capital gain = 297110 x 20% = 59422

Capital gain is coming a small amount (~3 lacs), you may consider paying 60K as income tax, if you want.

If you able to get possession of a new flat/house by 29 Jan 2012 with cost more than 3 lacs, there won't be any income tax payable.

There is one issue that may arise here, as capital gains was earned in FY 2010-11, in case new house is not transferred to your name by 31st July, 2011 (last date of tax return filing), capital gain has to be invested into capital gain scheme account. As this has not been done, income tax department may raise a tax demand on capital gains.

I would suggest you to either pay income tax or deposit amount in capital gain accounts scheme asap and file revised return (in case already filed). You may consider to consult an experienced tax professional before doing this.

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