Selling a property and investing in a new res house partly and partly by home loan

ANIL KUMAR JAIN 1
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Hi Sir, Please suggest a best option to save tax in the below scenario; Cost of old house ‘A’ purchased in 2004-05 Rs 11,18,000 Sold the old house in shape of plot ‘A’ (After demolishing the construction) in Jan2011 For Rs 35,00,000
Booked the new flat ‘B’ in Oct 2010 for Rs 25,00,000 which is to be given possession within two years. Home Loan taken On ‘B’ Rs 19,00,000 Paid in new flat ‘B’ Rs 3,50,000 Repaid the loan taken on this flat ‘B’ 5,00,000 Please clarify that in this case LTCG should be paid to IT deptt or no LTCG as a new residential flat is purchased/booked within same year Thanks a lot. Anil Kumar Jain

section-54f residential-house housing-loan long-term-gains capital-gains
1 Answers

Please find below computation of long term gains and income tax:

Purchase Year = 2004-05, Purchase Cost = 1118000, Cost Inflation Index (CII) for purchase year = 480
Sale Year = 2010-11, Selling price = 3500000, CII for sale year = 711
Indexed Purchase price = 1118000 x (711/480) = 1656038
Long term capital gain = 3500000 - 1656038 = 1843962
Income tax on capital gain = 1843962 x 20% = 368792.4
Invested Amount = 2500000
Non-exempted capital gains = 1843962 *(1-2500000/3500000) = 526846
Income tax on non-exempted capital gains = 526846 x 20% = 105369

If you would have sold residential house w/o converting it to plot, you could have saved above income tax as section 54 would have applied in that case (in spite of 54F now). U/s 54 only long term gains have to reinvested to save tax fully, but in case of 54F whole sale consideration amount need to be invested.

Moreover, u/s 54f 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.

Another issue I can see can be not opening a capital gains account to keep sale consideration. As per law, if possession/registration of new house is no taken before last date of income tax filing (31st July, 2011) for financial year in which gains occurred, sale consideration amount needs to be put into capital gains account. Failing to which, income tax benefit won't be applicable.

Pankaj Batra5212

thanking you very much sir, pls tell me now, how can I deposit my tax to ITO as 31st July2011 had already been expired, and I also submitted my ITR in October 2011.

ANIL KUMAR JAIN•

Please file a revised return as soon as possible, after opening a capital gains account. You may also consult a CA to take action faster, in order to avoid any further action from IT department.

Pankaj Batra•
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