saving capital gain tax

We (husband & Wife) purchased a plot in 2000 at a cost of Rs.206000/- + 20600 cost of stamp papers. We sold the plot in Dec.2011 at a cost of Rs. 1625000/-. I computed the capital gain as Rs.1243000 and LTCG tax as Rs.248600/-. Is it O.K.

There is a society flat in the name of my wife for the last 15 years in which we are still living. We have also booked a builder flat in Feb.2010 in joint names at a total cost of Rs.1900000/-. The possession of the flat will be given to us sometime in June to Sept. 2012. We have taken a Housing Loan of Rs. 1500000/- against this flat out of which Rs.1300000/- has been paid to the builder. Still we have to pay Rs. 600000/-to the builder + registry cost. I would like to know:

  1. Whether the capital gain can be adjusted in the H/L or the same can be adjusted in the balance cost of the flat we have booked i.e. Rs.600000/- + registry cost.
  2. If the capital gain can not be adjusted as per para 1 above, then can we both or singly purchase another flat within 2 years of sale of property to save the capital gain.
  3. We have been advised by somebody that we can also utilise the capital gain amount for marriage or education purpose of our children, is it right ?

Please guide us.

asked Jan 13 '12 at 13:49 by Ramesh Nautiyal 1111

This is in continuation of my query dt. 13.01.2012 regarding LTCG. I would like to inform you that I have not received the answer of my query as under: I booked a builder flat (cost 19 Lac) in Oct..2009 and availed H/L against this flat. I have already paid Rs.15 Lac ,to the builder ( Rs.2 Lac from my a/c and Rs.13.20 Lac from H/L account) out of which 5.10 Lac paid after Dec.2010). Balance Rs.4 Lac + registry charges still to be paid to the builder. Possession of flat in June - Sept. 12. My query is: May I adjust my entire H/L amount and pay the balance Rs.4 Lac from LTCG Rs.16.25 Lac which is from the sale of Plot in Dec.2011. If not the entire H/L then the amount paid from H/L after Dec.2010.
(Jan 27 '12 at 12:08) Ramesh Nautiyal
As possession of new house would be received within two from sale of plot, and cost of new house is more than selling price of plot, you need not to pay any income tax on long term gain u/s 54F. As already a new house is bought, You can use capital gains amount in prepaying home loan as well and to pay builder also. But please ensure all conditions for 54F (mentioned below in answer) are followed. Also, as possession is not received before 31st July, 2012, you would need to deposit sale consideration amount left into capital gain scheme account.
(Jan 27 '12 at 13:24) Pankaj Batra

Below is the computation for LTCG and income tax:

Purchase Year = 2000-01, Purchase Cost = 226600, Cost Inflation Index (CII) for purchase year = 406
Sale Year = 2011-12, Selling price = 1625000, CII for sale year = 785
Indexed Purchase price = 226600 x (785/406) = 438131
Long term capital gain = 1625000 - 438131 = 1186869
Income tax on capital gain = 1186869 x 20% = 237373.8

As land was in joint names (you and your wife), you both would have your share in gains. This share would be same as ownership share in land. If it was not mentioned, its assumed as 50% each.

So now, in order to avoid income tax fully on this gain, each of you would have to buy/construct a new residential house property u/s 54F or invest into capital gain bonds u/s 54EC.

Under section 54F, you can buy a residential house property within two years of land sale. As you are getting your new builder flat possession within such time, it would be eligible for tax benefit.

As new house cost is more than sale consideration amount of land, there is no income tax liability arising.

However there are below conditions for section 54F applicability here:

  1. Possession of new property must be taken within two years from sale of old property.
  2. You both should not be owning more than two residential house(flat/house/apartment) at the time of selling old property.
  3. Now as total residential houses owned by your wife will be two (including new property), she 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.

There is no income tax benefit of using capital gains amount in marriage or in children education. Only section 54F or 54EC can be used mentioned above.

answered Jan 13 '12 at 16:14 by Pankaj Batra 5.2k320


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Asked: Jan 13 '12 at 13:49

Seen: 3,003 times

Last updated: Jan 29 '12 at 17:48