Re-investing proceeds of current house into a new one

Tax planning 901 views 5 replies

gaurav bansal

Strategist

26 Points Joined May 2012

Friends,

I have some basic queries on tax laws on sale/purchase of residential property, and would really appreciate if you could throw some light on this:

I believe that the long-term capital gains from sale of old residential property must be invested in a new residential property, to save tax on the gains. Is it only the long term capital gain that has to be re-invested, or the original base amount of the old residential property as well? (e.g., If I bought my old house for 50 and selling it for 100, then do I have to (a) re-invest the whole 100 in a new house (this is popular opinion) or (b) just the capital gain of 50?
Would the registry charges (typically 5-7% of the new house price) be considered a part of this "Re-investment" to save taxes, or not?
Let's say I own 75% in our old house and my wife owns the rest 25%. Can I transfer another 25% of the share to her (without taking any money of course) without paying the registry charges to the govt?
If I am selling my old house for 100, and buying 2 new adjacent flats for 75 each (so total 150), can I consider the 2 new adjacent flats to be a combined "one self-occupied house" for the purpose of saving tax on the sale proceeds of the old house? (at least for rental income purposes, the govt of India allows this)

Thanks a lot in advance!

Regards,

Gaurav

Replies (5)

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

1. In case of section 54F the net consideration is requried to be invested & in case of section 54 the LTCG is requreid to be invested.

2. Stamp duty & regt chgs would be considered as part of the COA.

3. You cannot trasnfer the share to your wife's share. as any transfer without adequate consdieration otherwise than an agreemnt to live apart would be assessable in the hands of the transferor.

4. Yes you cna do that, provided that you can prove to the satisfaction of the AO that it is an one house.

gaurav bansal

Strategist

26 Points Joined May 2012

Thanks a ton Mr Giridhar.

regards,

Gaurav

gaurav bansal

Strategist

26 Points Joined May 2012

Mr Giridhar,

I need a clarification of your answer on my 2nd question. When we say that registry/stamp-duty/brokerage charges would be included in COA (means Cost of Acquisition - I guess) and hence become deductible from the LTCG, are we talking about the registry/stamp-duty/brokerage charges incurred when I bought my old property 10 years ago, or are we talking about the registry/stamp-duty/brokerage charges I am going to incur to buy the new property?

regards,

Gaurav

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

For your old property, the COA would be the cost incurred by you for buying the property which would be as per Sale Deed. On that cost the cost inflation index would be applied & after that the indexed COA would be deducted from your sale consideration received for your old property.

Now you are buying a new property, so the cost of that property would include the Stamp duty & regt charges also & that total cost as per the Sale Deed would be deducted from Capital Gains & if there is any balance remaining tax @ 20% wud be requried to be paid.