LTCG ON SALE OF PROPERTY

rakeshagarwal 1
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Dear Pankajji, My query is regarding Long Term capital Gain: Sita-Grand mother
Rita-Mother
Rajiv-Rita’s son
Rita inherited a plot of land after expire of her mother sita , land comes under municipality. Rita Gifted the entire plot of land inherited from his mother to his Son Rajiv. Rajiv comes to an agreement with the purchaser for entire sale of land for RS.2.5Crores and sale deed will be signed in the month of December, 2012. As per cost inflation index cost price of Rajiv comes to Rs.50Lacs and a Long Term capital gain comes to Rs.2crore. Agreement of sale is such that purchaser will make an advance payment of Rs.1Crore from January to March, 2012, 1crore from April to September, 2012 and balance Rs.50lacs at the time of sale deed is being signed. Rajiv owns one Residential flat in his name at present and booked one more flat costing Rs.1crore and made an advance payment of RS.10lacs and balance will be paid at the time of purchase deed agreement. Sale consideration of Rs.50Lacs is received as a token of advance in the month of January, 2012 as per the agreement of sale of land and the money received by Rajiv is invested elsewhere. As per my knowledge DTC will comes to w.e.f. 1St April, 2012. Rajiv plans to take benefit of Rs.1Crore U/S 54f by purchasing the above mentioned flat and balance of Rs.1.5crores by investing in capital Gain bonds U/S 54EC or opening a capital gain scheme account with any nationalized bank. Now my query is as follows:

  1. What advice will you give to Rajiv to save Rs.2Crore from a Long Term capital Gain Tax from beginning, taking into consideration that DTC will comes to w.e.f 1St April, 2012.
  2. Whether advance money received before transfer of property is to be deposited in capital gain scheme account with any nationalized bank or can be deposited in normal current or saving bank account or invest elsewhere and after transfer of property only Capital gain scheme account required to be opened.
  3. Whether advance made for purchase of flat is to made from the amount received in advance from sale of land or payment from other account can be made and exemption U/s 54f can be claimed.
  4. Whether Capital Bond is to be purchased from advance received from sale of Land or bond is to be purchased after transfer of property is made.
  5. How long one can keep the sale proceed of property in capital gain scheme account with any nationalized bank.
  6. Please provide case law or notification regarding above related matter if any as per our suggestion.

Looking forward for your valuable reply and oblige.

Yours faithfully Rakesh Agarwal

section-54f gain section-54ec long-term capital-gains income-tax
1 Answers

As its a land sale, in order to avoid income tax fully, whole sale consideration have to be invested and not only gains.

Tax can be saved either by using section 54F or 54EC. Tax rules are not very clear if both sections can be used simultaneously of not. Say, if they can be used, then Rajiv can maximum invest 50 lakh into capital gain bonds per financial year and investment has to be done within six months from sale. So for a sale deed in Dec'2012, he can invest 50 lakh before March'13 and another 50 lakh before June'13. This will save 1 crore from income tax.

Now lets look at rest of 1.5 crore. As he already owned a flat and booked another too, he can claim tax benefit againts newly booked flat for 1 crore.

As now inevstment of 2 crore would be made from sale consideration of 2.5 crore, income tax would be applicable on remaining capital gain propotionally.

Non exempted capital gains would be = 2 *(1-2/2.5) = 40 lakh 20% income tax would be payable on this 40 lakh.

  1. Advance money received before transfer of property need not to be invested into capital gain scheme account.
  2. Once capital gain scheme account is opened, then payments for new property should be made from that, otherwise you can pay from any account.
  3. Capital gain bonds cannot be purchased before transfer of property.
  4. If possession of new property is received before last date of income tax filing for the year in which transfer of sold property occured, there is no need to open a capital gain scheme account. But it would be mandatory in other case.
  5. Capital gain scheme account can be maintained for maximum three years. New property possession must be received before end of two years from sale of old one. In case of own construction, this time is three years.
Pankaj Batra5212

Pankajji thanks for your reply. But in your answer effect of DTC which will comes to an w.e.f.01/04/2012 was not reflected.whether in DTC there is no change in LTCG rules, if yes Plz reply. Secondly, I have made one question regarding Service tax two or three days back but I haven't received any reply from your end whether you reply for service tax or not. Plz reply. Thridly,Plz avail me with one Project Report of OXygen and Acetylene Gas plant for bank loan purpose of 60lacs Term Loan and 40 Lacs working capital if you have. Looking forwrd for your Reply.

Yours faithfully, Rakesh Agarwal

rakeshagarwal•

Under direct tax code, for long term gain, instead of flat rate of 20% of gain after indexation benefit, new concept has been introduced. Now gain after indexation will be added to taxable income and taxed at per the tax slab. Base date for cost of acquisition has been changed to 1st April, 2000 instead of earlier 1st April, 1981. There won't be impact on tax saving rules and it would impact tax on remaining gains which is non-exempted as it would increase income tax to 30%.

We don't have expertise in issues related to service tax, so we have not answered that question. Somebody who has experience in such topics may answer it in future.

We don't have any project report on Oxygen gas plant etc.

Pankaj Batra•
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