capital gain tax on selling a residential house

Sir, I have sold a residential house for Rs.44,00,000/- in 2011 November. The plot was purchased in 1981 for Rs.1,00,000. House was constructed in 2010-11 and sold in 2011 November. How can I save the income tax. Should I purchase a residential house for the amount or can I purchase two different sites for the amount Rs.44,00,000/- or can I construct a house on a site which I already own.

asked Nov 28 '11 at 09:40 by shiva 1111

You have not mentioned construction cost incurred in 2010. Below computation for long term gains and income tax is done with assumption of construction cost of 10 lakh, please change it according to correct figure.

Purchase Year = 1981-82, Purchase Cost = 100000, Cost Inflation Index (CII) for purchase year = 100
Construction Year = 2010-11, Construction Cost = 1000000, Cost Inflation Index (CII) for Construction year = 711
Sale Year = 2011-12, Selling price = 4400000, CII for sale year = 785
Indexed Purchase and Construction Cost = 100000 x (785/100) + 1000000 x (785/711) = 1889079
Long term capital gain = 4400000 - 1889079 = 2510921
Income tax on capital gain = 2510921 x 20% = 502184.2

In this case you would need to buy a residential house property for atleast 25.11 lakhs to save income tax fully. Amount has to be invested into only a single residential property (not more than one). Tax benefit won't be applicable on buying plots or commercial properties. But if a house is constructed on plot, tax benefit can be taken against plot purchase cost and construction cost.

answered Nov 28 '11 at 14:41 by Pankaj Batra 5.2k320

I might be wrong here. But isn't it necessary that the construction (plot purchase + construction) happen within 3 yrs of incurring LTCG? In this case, the plot is already owned, probably bought a few years back.
(Dec 06 '11 at 11:15) Sabarish
Its not necessary to buy the plot within next three years. Construction on existing plot can also be done in next three years.
(Dec 12 '11 at 19:35) Pankaj Batra

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Asked: Nov 28 '11 at 09:40

Seen: 2,095 times

Last updated: Dec 12 '11 at 19:35