Question on ltcg tax on sale of property

Tax planning 1165 views 3 replies

Sumit Dhar

33 Points Joined June 2010

Hello Experts:

I need some help in resolving some questions around LTCG from sale of property.

Background:

Booked in 2005 march

Delivered in 2007 April.

Total cost inclusive of registration: circa 40 L

Potential sale value: circa 80L

1. What constitutes Acqusition cost? My list is as follows, please confirm:

Construction Cost

Electrcity Charges

water & waste treatment Charges

Advocate fee

Mesh & Grill

Maintenance Deposit

Reg & Stamp Duty Charges

Service Tax

Interest

Modification

Please ratify. From my point of view all this was required for the acquisition of the property and hence should count.

2. What happens to the amount of tax on housing loan that I haven't been able to get deduction for. Suppose in a year the total interest paid to bank is 380000. Me and wife claimed 300000 as this was self owened. Can I add the balance 80000 that was never claimed to the cost of acquisition? How will this be indexed- based on the actual year of registration/ occupation certificate of property or for the year that specific interest component was paid?

3. Does interiors done during the initial days before occupying constitute cost of acquisition?

4. Question on indexing: assuning the transaction will happen in 2012-2013 what should I use as CII for this FY? I am using 8% above the CII for 2011-2012. Plz confirm.

5. My sense is that I will have aboout around 7-8L capital gains. Given the above fact should this be considered a long or short term gains? If long term then is there any way I can defray or save on paying the long term capital gains tax?

Thanks in adavnce for reading my post and helping.

Replies (3)

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

the following sould be considered as the Cost of Acquisition:

Construction Cost, Electricity(MSEB Deposit), stamp duty & registration charges.

The amount of Interest paid on the house loan, before you get the possession of the house is not eligible for decution during the period of construction. when the construction gets over & the possession of the flat is handed to you in the a paticular year, then the interest till the ned of the preceeding year would be eligible for deduction in5 equal installments from the eyar when the possession is handed to you apart from the itnerest whihc you would pay since you get the possession. The toal interest would be eligible for deductiun upto Rs 1.50lacs for each of you includive of pre-emi interest provided you both are the joint owners of the property. Otherwise the person who is not the owner of teh property would not be eligible for deduction.

Interiors made would not be classified as COA of teh property.

The inflation rate is between 10%-12% so CII can taken accordingly.

The LTCG is being calculated roughly as below. The CII for 12-13 is taken approx at 864 by applying 10% inflation to 11-12 CII

Sale Cnsd	8000000
Less: COA	-6272232	4000000*864/551
LTCG	1727768

Tax @ 20%	345554

You cna save the LTCG tax by investing the LTCG in the bonds of NHAI or REC maximum upto Rs. 50lacs. Since your gains are 17lacs only, the whole of them can be invest & LTCG tax can be saved.

Sumit Dhar

33 Points Joined June 2010

Hello, I am a bit suprised that the interiors are not covered under cost of acquisition. What I mean by interiors cost is the cost of building kitchen, ward robes etc to make it liveable. Also, what are my options if I want to reinvest the amount in a new property in the next 1-2 years? Please help!!

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

Cost of acquisition would only include the cost that the builder incurs on your behalf & you repay the builder such as stamp duty & regt MSEB deposit etc. the interiors would not constitute the Cost as you have incurred it after buying the property from the builder. Or if teh builder has prepared and given you teh interiors then it can be included in the cost.

You will have to invest the LTCG in property within 2 years from the date of transfer in case of ready to built flat & within 3 years from the date of trasnfer in case of under construction flat. if you are unable to invest the LTCG before filing your return of income, then you will be requried to deposit the entire LTCG in the Capital Gains Account deposit scheme with SBI on or before the due date of filing the return in order to save tax for that A.Y. then you will have to withdraw the amount from this deposit account as & when you get a flat to purchase or in case of under construction flat withdraw the amount as and when requried but within 3 years or 2 years as applicable.

fi you are not able to purchase the flat within 2 years or 3 years as the case may be then the entire LTCG depostied in the scheme would be taxable after the expiry of 2 or 3 years as the case may be.