Capital gain

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 May 2017 Dear Expert,

I want to get your guidance for my tax planning.

I bought a residential house in 2011 for Rs.50,000/- and sold the same in Oct 2016 for Rs.8 lakhs. In the month of Dec 2016 I have bought a house site for Rs.8 lakhs My close friends advised me to pay capital gain tax. I have no income at all have I to pay the tax. I am in dilemma. Please help me with right advice.

Thanks & Regards,
Annammal,
Karaikudi-630001.

Expert : Anonymous

Expert : Anonymous (Expert)

25 May 2017 In Dec 16 what you have purchased? House or house site..??

Querist : Anonymous

Querist : Anonymous (Querist)

26 May 2017 I have bought a house site for Rs.8 lakhs

Expert : Anonymous

Expert : Anonymous (Expert)

26 May 2017 What do you mean by house site..??

Expert : Anonymous

Expert : Anonymous (Expert)

26 May 2017 What do you mean by House site, I presume to be a land purchased by you then, then there is no capital gain tax you can get exemption for the amount invested, It is better to file Income tax return and claim exemption.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 Based on the information provided, let's analyze your situation regarding the capital gains tax:

1. **Calculation of Capital Gain:**

Capital Gain = Sale Consideration - Cost of Acquisition

- **Sale Consideration:** Rs. 8,00,000 (8 lakhs)
- **Cost of Acquisition:** Rs. 50,000

Since you purchased the residential house in 2011 for Rs. 50,000 and sold it in October 2016 for Rs. 8,00,000, the capital gain calculation is straightforward:

Capital Gain = Rs. 7,50,000

2. **Type of Capital Gain:**

- The property was held for more than 3 years (from 2011 to 2016), so the capital gain is considered a long-term capital gain.

3. **Tax on Capital Gain:**

- Long-term capital gains on the sale of residential property are taxed at a flat rate of 20%, plus applicable surcharge and cess.
- Therefore, the tax liability on the capital gain of Rs. 7,50,000 would be:

Tax = Rs. 1,50,000

4. **Exemption under Section 54:**

- Under Section 54 of the Income Tax Act, you can claim an exemption from paying capital gains tax if you reinvest the sale proceeds in another residential property within specific timelines.
- In your case, you have purchased a house site for Rs. 8,00,000 in December 2016. If this house site is intended for constructing a residential house within the stipulated time period (usually within 3 years from the date of sale), you may be eligible to claim exemption under Section 54.

5. **Conditions for Exemption under Section 54:**

- The new residential house site must be purchased within 1 year before or 2 years after the date of sale of the old residential house, or constructed within 3 years from the date of sale.
- The amount of capital gains should be utilized for purchasing/construction of the new residential property.

6. **Conclusion:**

- If you fulfill the conditions under Section 54 and intend to use the house site for constructing a residential house, you can claim exemption from capital gains tax.
- If you do not reinvest the entire capital gains amount or do not meet the conditions under Section 54, then you would need to pay tax on the capital gains.

Since you have already purchased a house site for Rs. 8,00,000 in December 2016, which is around the same amount as your sale consideration, you should explore the possibility of claiming exemption under Section 54. Ensure that you maintain proper documentation of the purchase and intend to use it for residential purposes to satisfy the conditions for exemption. It's advisable to consult with a tax advisor or chartered accountant to handle the specifics of your case and ensure compliance with tax laws.