Long term capital gains tax for land / Plot

preethamk 1
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I have bought a land in 2008 Apr for 8Lakhs. I have sold it on 2011 Jun for 18 Lakhs. I have invested 10.5 Lakhs in a new property (apartment) in 2011 May. I already own one more house since 2003.

  1. What is the long term capital gains tax for the land I have sold?
  2. If I have to gain tax benefit on the sale proceed, how much should I invest further on the new property?
  3. Are there any restrictions for taking tax benefit on the new property? Like it has to be registered within 1 year or it should be only in city limits, etc???
residential-land section-54f long-term-gains capital-gains income-tax
1 Answers

Please see computation for long term gains and income tax below:

Purchase Year = 2008-09, Purchase Cost = 800000, Cost Inflation Index (CII) for purchase year = 582
Sale Year = 2011-12, Selling price = 1800000, CII for sale year = 785
Indexed Purchase price = 800000 x (785/582) = 1079038
Long term capital gain = 1800000 - 1079038 = 720962
Income tax on capital gain = 720962 x 20% = 144192.4
Invested Amount = 1050000
Non-exempted capital gains = 720962 *(1-1050000/1800000) = 300401
Income tax on non-exempted capital gains = 300401 x 20% = 60080

You would save full income tax if you invest whole sale proceeds of plot (18 lacs) towards new house property.

Below are some conditions u/s 54F, which is being used here:

  1. Possession of new property must be taken within two years from sale of old property.
  2. You should not be owning more than one residential house(flat/house/apartment) at the time of buying new property. As you already own just one residential property that would be fine.
  3. Now as total residential houses owned by you will be 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.
Pankaj Batra5212

Thank you very much for a lightening response. Few last questions: 1. The new property i am buying is a apartment, its not a independant house, Is this ok? 2. I understand from your post that the new house needs to registered within 3 years. What happens if the builder delays? What is the tax implication?

preethamk•
  1. Its ok to buy an apartment. Until its a residential property, its fine.
  2. Possession and registration should be done within two years from sale of old property. If builder delay, you are liable to pay income tax on gains.
  3. If possession/registration is not done before income tax filing for the year in which gains occurred, the whole sale consideration amount has to be deposited to a capital gains account. Amount can be withdrawn from such account in form of payment to builder/seller of new property.
  4. You can also save income tax by investing into capital gain bonds u/s 54EC within six months of sale.
Pankaj Batra•
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