Query on income tax on property sale

Tax queries 279 views 3 replies

Rajashree Sampath

5 Points Posted on 14 September 2016

Hi, Please help me on the below query.

XXX is a Partnership Firm, having 3 Partners. It is into Real Estate Business.

It owns a Plot. This Plot was bought in Oct 2012 at 10,00,000/- (Ten Lakhs). After Buying the Plot, not many transactions or expenses happened in the Firm's name.

Option I:
Now (in 2016-17) XXX wants to sell this Plot for 15,00,000/-. So on a profit of 5,00,000/- what is the tax liability (Capital Gains or Income Tax)? If it is Only Capital Gains, Can the Firm reinvest in other property (in 2016-17) from the profit of 5,00,000/- and not pay any Tax?

Option II:
Two Partners of XXX will release the Plot to 3rd Partner's individual name at no cost. If this is not feasible, the Firm gets dissolved and the Plot gets transferred to the 3rd Partner and then the 3rd Partner sells the Plot (in 2016-17) for 15,00,000/-.

Here the questions are : Should the 3rd Partner Pay the Capital Gains Tax on entire 15,00,000/-? Or on 5,00,000/-? or Can the 3rd Partner reinvest in other property (in 2016-17) the profit of 5,00,000/- and not pay any Tax?

If the 3rd Partner is liable for Capital Gains Tax on entire transaction amount, i.e, 15,00,000/- can he/she reinvest the entire 15,00,000/- in other property (in 2016-17 and not pay any Tax?

Which of the above options are best for minimising the Taxation?

Replies (3)

CA Tanvi Sheth

Consultant

232 Points Posted on 14 September 2016

Hello,

As mentioned in your query, the firm is into real estate business, does it mean the land is stock for the firm or they have held it for investment!

If as stock then it will fall under the purview of business income and will be taxable under normal tax rate as applicable to the firm.

In held as capital asset then indexation will apply and taxed as long term capital gain.

For the option as mentioned by you, to transfer asset in partener's name, it will attract section 45(3) if it is a capital asset.

So firstly please clarify whether it is stock for the company or capital asset.

Thanks

Rajashree Sampath

5 Points Posted on 14 September 2016

Hi Sir,

Thank you for your response.

It is a stock for the firm.

CA Tanvi Sheth

Consultant

232 Points Posted on 16 September 2016

Hello,

As it is considered as Stock, it will be considered as normal sale and purchase and profit of Rs. 5 lac will be taxed @ 30% as applicable to the firm.

Thanks