Sale of commercial shop - Reinvest in house

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?

asked May 24 '12 at 02:30 by Andy1110 111


  1. 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.
  2. 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.
  3. 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
  4. The gains and exemption needs to be shown in income tax return.

answered May 29 '12 at 00:03 by Pankaj Batra 5.2k320

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Asked: May 24 '12 at 02:30

Seen: 1,055 times

Last updated: May 29 '12 at 00:03