Capital gain

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 January 2014 Dear Sir,
we have an land in the name of my mother and i wanted to sale it now we have purchased the same 20 years back in 25000.so i want to confirm that if we spend the whole amount of sale in purchase of new residential house so can we exempted from tax and our current house is also in the name of my mother and as she has no taxable income ever so we never submit her return but now if we sell the land and purchanse an house aginst it then what we had to do to exempt tax

Querist : Anonymous

Querist : Anonymous (Querist)

19 February 2014 please any expert is here who can help.

Querist : Anonymous

Querist : Anonymous (Querist)

19 February 2014 please help any expert is here to answer.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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18 July 2024 If you sell the land and reinvest the entire amount into purchasing a new residential house, you can avail exemption from capital gains tax under Section 54 of the Income Tax Act, 1961. Here’s how you can go about it:

### Conditions for Exemption under Section 54:

1. **Nature of Asset Sold:** The asset sold should be a long-term capital asset. In your case, since the land was held for more than 2 years, it qualifies as a long-term capital asset.

2. **Investment in Residential House:**
- You must purchase a new residential house either 1 year before the sale of land or 2 years after the sale.
- Alternatively, you can construct a new residential house within 3 years from the date of sale of the land.

3. **Utilization of Sale Proceeds:**
- The entire sale proceeds (not just the capital gain) must be utilized to purchase or construct the new residential house.
- If the entire amount is not reinvested, only the proportionate amount will be exempt from capital gains tax.

### Calculation of Capital Gain:

1. **Indexed Cost of Acquisition:** Since the land was purchased 20 years ago, you will calculate the indexed cost of acquisition. This adjusts the purchase price for inflation using the Cost Inflation Index (CII) published by the Income Tax Department.

2. **Capital Gain:** Capital gain is calculated as the difference between the sale proceeds and the indexed cost of acquisition.

### Example Calculation:

Assuming:
- Purchase price of land 20 years ago: Rs. 25,000
- Sale proceeds of land: Rs. X
- Indexed cost of acquisition: Calculated using CII for the relevant years
- Capital gain = Sale proceeds - Indexed cost of acquisition

### Steps to Claim Exemption:

1. **Investment in New House:**
- Identify a residential house to purchase or construct within the specified time frames.
- Ensure that the entire amount from the sale proceeds of the land is utilized for this purpose.

2. **Documentation:**
- Keep all documents related to the sale and purchase/construction of the new house.
- File Income Tax Return (ITR) and claim exemption under Section 54. Provide details of the new residential house and the amount reinvested.

3. **Tax Filing:**
- Even though your mother may not have taxable income, if she is the owner of the land, she will need to declare the capital gains and claim the exemption in her income tax return.
- Submit the necessary documents and proofs along with the ITR.

4. **Consultation:**
- It's advisable to consult with a tax professional or chartered accountant to ensure compliance with all tax laws and to accurately compute the capital gains and exemption.

By following these steps and ensuring compliance with the provisions of Section 54, you can effectively exempt the capital gains tax on the sale of land by reinvesting in a new residential house.

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