Income tax on income from house property

I have sold a plot in Delhi in November of 2010 for Rs. 30 lacs (This plot was purchased in 2006 for Rs. 10 lacs). I want to understand what is my tax liability? Also I have purchased another flat in July 2010 (construction linked payment) in joint ownership with my son. If I am making the payments for this flat to the amount which is equal to the sale price of the plot,within a period of one year, then will I be exempt from Capital gains tax?

asked Sep 02 '11 at 10:42 by DarshanK 16112

You will be able to save income tax on long term gain as per section 54F.

Below is the long term gains and income tax computation:
Purchase Year = 2006-07
Purchase Cost = 1000000
Cost Inflation Index (CII) for purchase year = 519

Sale Year = 2010-11
Selling price = 3000000
CII for sale year = 711

Indexed Purchase price = 1000000 x (711/519) = 1369942
Long term capital gain = 3000000 - 1369942 = 1630058
Income tax on capital gain = 1630058 x 20% = 326011.6

To save this tax fully, your share in new residential property must be more than sale consideration of plot (30 lacs). If its less, income tax would be applicable on proportionate basis of gain.

If possession of new house is not taken before income tax return filing of financial year in which gains occur, whole sale consideration amount has to invested into capital gains account and payment to builder/seller should be done from there.

Also, 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.

answered Sep 02 '11 at 18:10 by Pankaj Batra 5.2k320

Hi Pankaj, Thanks for these details. The new property / flat that I have purchased is the only property in my name (jointly owned with my Son) after selling the old plot (which was co-owned with my wife). However, this flat is currently under construction with a possible possession by June 2012 (which is less than 2 year of selling the old plot). In between November 2010 (date of sale of property) and April 2011 I have made payments of 30 lakh rupees to the builder for this new flat. However, these payments were made from Saving bank account that I hold jointly with my Son. Please suggest in such a case will I get the tax exemption for the capital gain on the property. Secondly, I accidentally missed declaring the sale of this plot in my income tax returns filled for year 2011-12. Is there a way that I can file for amendment of my income tax returns and declare the sale of plot. Please suggest what is the procedure for doing same. Thanks, Darshan
(Sep 02 '11 at 23:28) DarshanK
First, as old plot was co-owned by you with your wife, there will be tax liability for both of you (gains will be divided among you and your wife). If both wants to save tax fully, each one will have to buy property worth 15 lacs atleast. You may buy in joint ownership worth 30 lacs.
(Sep 02 '11 at 23:38) Pankaj Batra
If your wife does not buy new property, she would have to pay 20% income tax on 8.15 lacs (her share of gains). As you have already made payments to builder for amount more than your part of sale consideration, you may skip investing in capital gain bonds, but you need to file revised return now showing plot sale. You should show capital gains and exemption under section 54F.
(Sep 02 '11 at 23:44) Pankaj Batra
Since the payments that I have made for new flat were from the Savings bank account and not the capital gains account, will I be able to claim tax exemption for the portion I have re-invested. Please suggest. Thanks, Darshan
(Sep 02 '11 at 23:46) DarshanK
yes, you would be eligible. Capital gain accounts is required if same if done after return filing last date (31st July).
(Sep 02 '11 at 23:47) Pankaj Batra
Also can my wife re-invest the 50% of the consideration amount (i.e. 15 lakh) in some other property within the next 1 year (less than 2 years of sales of our plot) to claim tax exemption.
(Sep 02 '11 at 23:50) DarshanK
Yes, she can invest in residential house property to save tax. Other conditions will remain same as were in your case. But she would have to deposit the amount into capital gains account as July 31 has passed. In case you only made whole payments while buying old plot and she was joint owner without any contribution, then you can treat whole gain to you and she won't have to do anything.
(Sep 02 '11 at 23:54) Pankaj Batra
Thanks Pankaj. My wife is a house-wife and she was a just co-owner in the plot but did not make any financial contributions in purchasing the old plot. As mentioned by you, it seems in that case I can re-invest the entire 30 lakh rupees that I received from selling the old plot. Also since I have already done the same before July 31, 2011, it seems I will be exempted from the capital gains for the sale of my plot. Please confirm. The only thing as I understand from your message is that I need to fill amendment for my income tax returns for the previous year and claim exemption under Section 54F. Please confirm if my understanding is correct. Thanks a lot for your help and expert advise. Darshan.
(Sep 03 '11 at 00:01) DarshanK
Yes, your understanding is correct. Still you may consider to consult a tax professional experienced in property matters while filing return, in order to avoid any irregularities.
(Sep 03 '11 at 00:04) Pankaj Batra
Hi Pankaj, Thanks for your help.
(Sep 03 '11 at 00:25) DarshanK
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Asked: Sep 02 '11 at 10:42

Seen: 2,942 times

Last updated: Sep 03 '11 at 00:27