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Capital gain

Rahul jain (LEARNING & TEACHING) (435 Points)

13 February 2014

gud mrng to all of u........

i have a property say X of rs.15lac i sold it at rs.20lac and whole amount ie. rs.20lac i had invested in new property say Y.

after one year i sold property Y at nil gain that means at rs.20lac

sholud i pay tax if yes than on which amt. or if no than is it not a nice tax planning for saving tax,.???

plz reply....

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19 Replies

SUMIT KUMAR JANGID (CA FINAL STUDENT) (136 Points)
Replied 13 February 2014

In second propertry i.e; Y you got nil capital gain, hence you haven't to disclose it or pay tax, but in first property you have to pay tax on Rs. 5 lac. Second think you have to pay tax if long term CG on Property Y if you follow Indexation Cost Method.

Rahul jain (LEARNING & TEACHING) (435 Points)
Replied 13 February 2014

thnx dear....

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 19 February 2014

It would be a flawed strategy,donot do this.In your case as you transferred and invest again in residential property,you are exempted from capial gain of rs 500000(2000000-1500000) by assuming 1500000 as Indexed cost of acquisition u/s 54.but when you transfer such new property with in 3 years then capial gain exepmtion you get in previous transaction would be reduced from 2000000 and indirectly 500000 will be taxed as short term capital gain.For eg in your case,if you dont opt for 54,you will pay Longterm capital gain after Indexed cost on 500000 but if you do your strategy you will pay short term capital gain on 500000 before Indexation

Rahul jain (LEARNING & TEACHING) (435 Points)
Replied 19 February 2014

thnks nuli...but can u suggest me the way to avoid tax on rs. 500000 and not in wait for long term sale,,,,

SAURABH NENE (Chartered Accountant) (226 Points)
Replied 19 February 2014

I would like to add to what Nuli has said. Firstly the property X must be a long term capital asset to claim exemption. If you invest the amount in a new house, you will be eligible for exemption u/s 54.

If you sell the new house property within 3 years, the amount of exemption that you availed for property X will be reduced from Cost of Acquisition of property Y for the purpose of computing capital gain on property Y.

Further as the Property Y is sold within 3 years, it will give rise to a Short Term Capital Gain and you will not be eligible for indexation benefit and also there will be no other exemption available.

Rahul jain (LEARNING & TEACHING) (435 Points)
Replied 19 February 2014

@ surabh sir-if i sell property Y at nil gain...than also i need to pay tax on gain on my previous property ie. rs.500000..???

SAURABH NENE (Chartered Accountant) (226 Points)
Replied 19 February 2014

See your Cost of Acquisition of property Y for the purpose of capital gain will be:-

The Actual Cost of property Y Less The amount of exemption claimed on Property X .

So if you assume it to be Rs. 5 Lakhs , yes you will land up paying short term capital gain tax up to @ 30% (depending upon your total income) on property Y.

Arpit Pachisia (CA) (734 Points)
Replied 19 February 2014

Hello Rahul,

If Rs.15,00,000 is the cost of acquisition at the time of sale (indexed value), than you are having a long term capital gain of Rs. 5,00,000 today. Now you had invested whole Rs.20,00,000 in another property and than sale the same at same cost, so now your previous exemption is withdrawn and now you had a short term capital gain of Rs.5,00,000. Well you had to pay tax either this way or that way.

In my opinion, it is better to pay short term capital gain rather than long term capital gain means invest in other property and than sale. As of now you had to pay STCG @ 10% where you also claim deduction u/s 80. And if you opt for LTCG, than you had to pay taxes @ 20% flat.

So this is also a nice tax planning for tax savings.

Thank you

Rahul jain (LEARNING & TEACHING) (435 Points)
Replied 19 February 2014

thnx arpit sir....

SAURABH NENE (Chartered Accountant) (226 Points)
Replied 19 February 2014

Dear Arpit, Concessional Rate of 15% (and not 10%) on Short Term Capital Gain is available only in case few assets like, Share and Securities sold on stock exchange and on which STT is paid and may be on certain other assets.

But otherwise for all other assets, short term capital gain is chargable at normal rate of tax i.e. as applicable to assessee. It is considered as part of income chargable at Noramal rate of Tax.

Arpit Pachisia (CA) (734 Points)
Replied 19 February 2014

Hello,

Well Saurabh Sir, will you please let me know that what will be the amount of tax on such sum (say Rs.5,00,000) as provided in the question, if you want to calculate LTCG or STCG. Just provide me the amount of tax you will pay?

Thank you

SAURABH NENE (Chartered Accountant) (226 Points)
Replied 19 February 2014

LTCG will be calculated @ 20% flat + surcharge + e.cess as applicable so in this case Rs. 1,00,000+ surcharge (for A.Y 2014-15) (if applicable)+ e.cess

while if it is STCG, amount of STCG will be added to other normal income of assessee (salar, house property, other sources etc.) and tax will be calculated as per the slab rates applicable to assessee based on his total taxable income.

Rahul jain (LEARNING & TEACHING) (435 Points)
Replied 19 February 2014

@ sarubh sir-basically you want to say that if i sell my property in short term then i need to pay stcg @ 10% instead the gain amount will add in my normal income and after claiming my basic exemption limit of rs.200000. i need to pay tax as according slabs.

is it like that????

plz correct me if i wrong......

Arpit Pachisia (CA) (734 Points)
Replied 19 February 2014

Thank you so much sir, now tell me if a person is having a income of Rs.2,00,000 and he earns a STCG of Rs.5,00,000 than he had to pay taxes on Rs.7,00,000 less basic exemption limit of Rs.2,00,000 less any further deduction. And if he is having LTCG than he had to pay taxes flat on Rs.5,00,000+ any other income or deductions.

now according to my calculations, it will be beneficial again to have a STCG as it amounts to Rs.70000 less any deductions and you are advising to pay tax of Rs.1,00,000.

Thank you