LTCG for sale of Plot

SKRASTOGI 1
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I am likely to sell a plot purchased from a Co-operating Housing Society purchased in Dec 1997 on my name & make a capital gain of Rs. 21 Lacs. I have already booked a flat costing 38 lacs till date in Jan 2010 under construction linked plan on joint name with my wife and paid 80% amount till date partly with own funds earned thro my salary savings and partly with bank loan. Can I repay the outstanding loan with sale proceeds and adjust remaining amount against my own fund? I am likely to get possession of flat in Dec 2012. For balance 20% payment yet to be made should I keep sale proceed in Capital Gain account ?

section-54f residential-plot long-term-gains capital-gains income-tax
1 Answers

As you are selling a plot, you can avoid income tax on long term gains u/s 54F.

To save income tax fully, under this section, you can buy an residential house property with an amount equal or more than sale consideration of plot. If cost of new property is less than sale consideration, income tax would be applicable on proportionate basis of gain.

If registration and possession of new house is not taken before income tax return filing of financial year in which gains occur, whole sale consideration amount (minus any used amount in new property purchase) has to invested into capital gains account and payment to builder/seller should be done from there.

Also, following conditions have to be fulfilled:

  1. Possession of new property must be taken within two years from sale of old property. Or new house can be constructed within three years of sale.
  2. You should not be owning more than one residential house(flat/house/apartment) at the time of buying new property.
  3. If total residential houses owned by you is two (including new property), you should not buy another one within next three years of purchase. Or in next three years, total owned residential houses should not be more than two.
  4. New property should not be sold before next three years.

If you sell plot now and get possession of house in Dec 2012, you can very well claim tax benefit and then pay your existing home loan from sale proceeds.

Pankaj Batra5212

Hi Pankaj, Thanks for quick response. I request following questions to be replied in continuation of my querry. a. Can I adjust capital gain amount against own funds given to Builder for property under construction apart from Bank loan? b. Where I can open a capital gain account and what are limitations for operating LT account? c. I am already having a saving back account with nationalised bank specifically for payment to Builder only and so far all transactions have been done through this account. Do I require to open a seperate account for keeping sale proceeds?

Thanks in advance.

SKRASTOGI•
  1. Yes, capital gain income tax benefit would be against cost of new property. No matter from where the amount has been paid (home loan or own funds).
  2. Capital gain account can be opened in any nationalized bank. You can check more details about such account here: http://www.bankofindia.com/capitalgain.aspx
  3. Savings bank account won't help. A capital gains account is mandatorily required to claim tax benefit u/s 54F, if possession is not taken by specified time frame.
Pankaj Batra•
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