How to save capital gain tax

read the below section

Section 54 of the income tax act stated that the capital gain from sale of long term property can be saved if someone buy long term residential property or construct residential property from the capital gain amount. In this hub I’ll try to cover all the aspects regarding section 54 of the income tax act.

1- Section 54 benefits are only for individual and H.U.F.

2- Long term residential building or apartment sale only be considered.

3- The amount of capital gain can be saved up to the amount used in

- buy residential house within a year before the date of transfer of old house or in two years after the transfer

- Construct a new house within 3 years after the transfer of old house.

4- Capital gain under section 54 can be saved up to the amount used for buying or constructing new house. If the amount of capital gain is greater than the amount buying a new house, the remaining amount of capital gain will be taxed. For example

CAPITAL GAIN>NEW HOSE = capital gain-new house will be taxed

5- if the new house purchased or construct will be sold within three years from the date of purchase, the calculation of capital gain under section 54 are as under

- cost of new house<capital gain, value of new house=nil

- Cost of new house>capital gain, value of new house=purchase or construction minus capital gain. .

6- The remaining amount of the capital gain as per the number 4 in the points when capital gain is more than buying a new house, then the balance amount should be deposited in the banks under capital gain head. And if it is not deposited in the banks then the amount of capital gain will be taxable in the previous year as long term capital gain.

7- If the amount which deposited in banks will not be used within three years from the transfer of old house wholly or partly, then the remaining amount in the banks will be treated as capital gain.

Few greats points for section 54

1-     If a person partly purchase and partly construct then the exemption of section 54 is allowable fully. The main purpose of this section to give relief to buying/construct a new house as per a court case.

2-     If an assessee has purchased two or more houses with in time prescribed in section 54 of income tax act, he/she can claim only 1 house for exemptions of section 54 of income tax act.

3-     Exemption is also allowable if an assessee buys a share in the property and not the full property.

4-     Assessee can start construction of new house before the sale of the old house. Exemption of section 54 is allowable in full.

5-     The date of starting constructing new house doesn’t matter; it should be complete within time period of three years.

6-     The purchase of new house should necessary to be cash. It can be old debts as well as other monetary consideration. 

Hi Gargi,

The Capital gain on sale of L/T residential property can be saved by investing the same in another residential property, either:

1. 1 year before or 2 years after the date of transfer.

2. construct a new house within 3-years of the date of transfer.

The exemption limit is amount of investment or capital gains, whichever is lower with a 3-year lock-in period.

Conclusion:

1. He should invest Rs 1.50Cr in the acquisition of floor he needs for himself.

2. The rest of the amount can be utilised to invest in the residential property somewhere else, either in partnership or all on his own. The intention of law is to get the amount invested in property.

3. If he intends to construct a new house, than to get ample time he can start the construction anytime before selling the property but the same should complete in 3-years after the date of sale deed or registry of the house whichever is earlier.

4. Law also allows investment in bonds issued by NHAI or Rural Electrification corporation of India but the maximum investment limit is Rs 50 lacs in a F.Y.  and that the investment has to done in 6-months from the date o ftransfer.

5. Since you were keen on a monthly secured income plan,the alternative is to secure the place for himself and invest the remaining amount in another residential/ commercial property and earn rental income.

Regards,

Tarun

Sir, I have sold an agriculture  property on 28-06-2011 and created a long term Capital gain of about 1 crore 60 lakh. I have purchased a residential property worth 60 lakh. Now I wish to know that can I use the balance unused amount in buying one or more than one agriculture properties in the time frame. Also can I invest in Capital Bonds for the balance unused amount. I mean to say that can I use the capital gain amount accrued in all the three options to save tax on capital gain. I sold the property bought in the year 1999-2000. It was 1600 Sq.Mts. agriculture land, but since than never produced agriculture crop. But in land records it was an  agriculture land. I constructed a building in the year 2004-2005 on about 180 Sq.Mts. This land in within the periphery of 8 Km. from the nearest Municipal Council, therefore it can not be exempted from tax. Some CA in my contact told that since I have purchased a residential property, I can not use the unused amount in buying agriculture land to save tax on capital gain. Is it so ?

Please advise me. My mail ID is sagsha_51 @ yahoo.co.in

I shall be highly obliged. Thanks.

Truly yours

V.S.Sharma