Pankaj, Please see if you can help out on this. A commercial property was acquired in Nov 2005 for Rs.4 lakh and sold in Apr 2012 for Rs.8 lakh. i.e LTCG of 4 lakhs. I have reinvested the gains of Rs. 4 lakhs into a new residential house which is currently under construction and will be ready by end 2012. Currently, I am owning in two adjoining 1BHK flats which have been combined but is actually one house with a single kitchen and common entrance, but registered as two units. Q1- Am I eligible for reinvesting the amount to buy a new residential property, as I have one house only, but registered as two? Q2 - Is 8 lakhs or gain of 4 lakhs to be invested? If I need to invest 8 lakhs, can I put the diffference into a capital gains bond instead of putting into the new house? Q3 - Is there any need to show these calculations in the income tax returns?
1 Answers
- As you already own more than two registered residential house properties in your name at the time of selling commercial property, you are not eligible for section 54F.
- As sold property is not a residential house property, to save income tax fully, you need to invest euql or more than sale consideration amount and not only the gains part.
- To save tax fully, you can invest 8 lakh into capital gain bonds. If you invest 4 lakhs, income tax would be computed proportionally. See below:
Purchase Year = 2005-06, Purchase Cost = 400000, Cost Inflation Index (CII) for purchase year = 497
Sale Year = 2012-13, Selling price = 800000, CII for sale year = 850 (assumed as 850, as it not declared yet)
Indexed Purchase price = 400000 x (850/497) = 684105
Long term capital gain = 800000 - 684105 = 115895
Income tax on capital gain = 115895 x 20% = 23179
Invested Amount = 400000
Non-exempted capital gains = 115895 *(1-400000/800000) = 57948
Income tax on non-exempted capital gains = 57948 x 20% = 11590
- The gains and exemption needs to be shown in income tax return.
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