Capital Gain - Owning properties earlier and advise on reinvest

tanvinay 1
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I brought a piece of residential land in Pune from a builder (DSK) in Nov 2006 for a total consideration - including stamp duty, lawyer fees, electricity connection, registration etc - amount of INR 2,332,500/-.

Over the years i paid maintenance and property taxes to gram panchayat to the tune of INR 64,666/-.

I recently sold the plot in April 2012 for 52.6 lacs. I had to incur travel cost of around 20,000/- to Pune since i stay in Bangalore.

In the meantime, I booked a flat in Raj Nagar extension of Ghaziabad in Jan 2011 in joint names of me and my wife. The all inclusive price was 33.5 lacs excluding registry charges. I have already paid 90% of the amount. The possession has not come so far and so there has been no registry. There is no loan on this flat.

I also took a ready to move in flat in Bangalore in August 2011. The flat was registered again under joint name of me and my wife. I am currently residing in this flat. The price of this flat including registry was less then 52.6 lacs. However, including interior work it goes up to 60 lacs. There is also a bank loan on this property again under joint names.

My questions are: 1. How much is the amount of capital gain for sale of Pune Plot? What would be the tax on it? 2. Do i need to reinvest entire sale proceeds of 52.6 lacs to save on capital gain taxes and if yes, till when? 3. I now have 2 options to invest 52.6 lacs a. Buy an under construction flat for close to 90-95 lacs; pay certain amount this FY and rest as part of construction linked plan. However the possession would only happen around Dec 2014 or even later. b. Buy an already constructed flat for close to 55 lacs (including registry). I am more interested in option a; however, i have following doubts: i. In the current FY, my outgo to the builder would be lower then 52.6 lacs. What happens in that case? More importantly, does this help me save capital gain taxes? ii. I already have 2 properties in my name - one registered jointly with my wife in Bangalore and another still not registered but sale agreement is in joint name of me and my wife. Can i save capital gain taxes in such a case both for option a and b?

residential-land-sale section-54f long-term-gains capital-gains
1 Answers

1.Maintenance charges and property taxes cannot be included in cost of property. I also think travelling cost to pune for selling land cannot be added to property cost. Cost inflation index (CII) for FY 2012-13 has not been declared yet. In below computation, its assumed as 850. Please adjust it yourself once CII is declared.

Purchase Year = 2006-07, Purchase Cost = 2332500, Cost Inflation Index (CII) for purchase year = 519
Sale Year = 2012-13, Selling price = 5260000, CII for sale year = 850
Indexed Purchase price = 2332500 x (850/519) = 3820087
Long term capital gain = 5260000 - 3820087 = 1439913
Income tax on capital gain = 1439913 x 20% = 287982.6

2.In order to save tax fully u/s 54F or 54EC, you would need to invest whole sale consideration amount. Under section 54F, you can buy residential house property and possession for same should be received within two years of sale. u/s 54EC, you can invest into capital gain bonds within six months of sale.

3.There are some conditions for section 54F to apply: a. You should not be owning more than one residential house property (single or jointly owned) at the time of sale of land. b. New property should not be sold in next three years of possession. c. In next three years, total residential house properties owned by you cannot be more than two.

Pankaj Batra5212
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