• Sale of plot within three years of purchase

Sir, I purchased a plot in feb 2012 and sold it this month ( registree not yet done). if i earn a profit on sale and reinvest it immediately in purchase of a flat (under construction). Will I have to pay income tax on profit of sale of plot. It is in my wife's name and she is housewife. The purchaser will pay the total amount in may 2015, he has made partial payment by bank cheque which I have not yet deposited in the bank ( amount Rs 2,00,000/-). Please give sound advice on taxation laws in this case.
Asked 2 years ago in Property Law from Rishikesh, Uttarakhand
1. How to calculate Long term capital gains on sale of property -
The cost of acquisition of property that was purchased many years ago can be indexed, using the cost inflation index numbers. Cost inflation index, is a number derived for each financial year, by the Reserve Bank of India. This is done by taking into account the prevailing prices during that financial year.Hence, if we see a change in the cost inflation index between the year 1995 and 2010, it would give us an indication of the change in prices between these years. To start off, first you need to find the Indexation factor from the cost indexing inflation table. The cost of inflation index table is provided on this website and you can see it by clicking HERE or simply use the left side red arrow, to go to our previous page to see the latest chart up to the years 2012/2013.

2. Calculating your long term capital gainLong term capital gain is the difference between the sale price and the indexed cost of your acquisition.Formula: Long Term Capital Gain = Sale Price - Indexed Cost of Acquisition.Using the amounts from our example:Long Term Capital Gain = Rupees 105 Lakh - Rupees 88.56 Lakh = Rupees 16.44 Lakh.So the capital gain that seemed to be Rs. 70 lakh is actually only Rupees 16.44 lakh.  This can even be further reduced, when you add all the expenses for your property upgrades, maintenance etc. and apply indexing to those figures also. Suppose Rupees 6.44 lakh was spent in making improvements to the property after you bought it in 1995. Then your final figure is trimmed down to a capital gain of 10 lakh. Considering a 20% capital gains tax rate, you would have to pay just 2 lakh.Cost inflation index for prior years: The benefit of indexation can be availed, either from the year of acquisition of the property by the assesse, or from the base year 1981-82, whichever is later
Devajyoti Barman
Advocate, Kolkata
5248 Answers
54 Consultations
4.9 on 5.0
Are you a tax payer? how much you paid in the year?2013-14.
What is the total sale amount of the property? and Is it get by full white money or black.?

if you sell a property within three years of buying it, the tax benefits on the principal repayment and interest paid on the home loan are reversed. These are then included in your income when you file your tax return. Also, if a property is sold within five years of the end of the financial year in which it was purchased, all the deductions claimed under Section 80C with respect to the property are added to the taxable income in the year of sale. 
 If you want to save your tax, then you can invest the gain amount in buying new property.

Better to consult a tax practitioner or charted accountant
Ajay N S
Advocate, Ernakulam
1916 Answers
19 Consultations
5.0 on 5.0
1. Your income will come under 'Short-Term Capital Gains' since you have held the property for less than three years. STCG is added to income from other sources, and a taxpayer pays tax at the rate applicable to him/her. For short term capital gain, the gain from asset is added to the investor's income and taxed as per the income slab they fall under.

2. If the taxpayer sells the new house within three years of its purchase or construction, then for the purpose of computation of capital gain on the sale of the new house (remember, this becomes a STCG when the CG on the sale on the old house is greater than the cost of the new house), its cost will be taken as nil. If capital gain on sale of old house is less than or equal to the cost of the new house, its cost will be reduced by the amount of capital gain made (and was exempted) on sale of the first house.

3. Capital Gains Account Scheme: The amount of capital gain not utilized for purchase or construction of new house within the same accounting year, but which is earmarked for such purchase of construction, must be deposited in a specified bank account opened under ‘Capital Gains Account Scheme’, and payments in subsequent years must be made from such account. Section 54B applies to capital gain on transfer of agricultural land, if proceeds are invested in agricultural land. Its provisions are similar to those of Section 54 above.

4. Under Section 54 profit from selling property is exempt from capital gains tax if it is reinvested in another property. Under Section 54F profit from selling long-term assets like gold, silver, land is exempt from capital gains tax if it used for construction of a house. You may thus return the advance amount paid by the buyer, but this may invite a lawsuit for specific performance against you.
Ashish Davessar
Advocate, Jaipur
18259 Answers
450 Consultations
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1)  If investors buy and sell assets within 3 years, this comes under short term capital gain. If investors buy real estate, keep it for more than 3 years and sell, it comes under long term capital gain.

2) For short term capital gain, the gain from asset is added to the investors income and taxed as per the income slab they fall under. For example, if an investor falls under the tax slab of 30%, the gain will also be taxed at the rate of 30%.

3) if you sell a house within three years of buying it, the tax benefits on the principal repayment and interest paid on the home loan are reversed. These are then included in your income when you file your tax return. Also, if a house is sold within five years of the end of the financial year in which it was purchased, all the deductions claimed under Section 80C with respect to the property are added to the taxable income in the year of sale.

4) if you sell a property after three years from the date of purchase, the profit is treated as a long-term capital gain and is taxed at 20% after indexation. While you can avail of various tax exemptions in case of long-term capital gains, no such benefit is provided for short-term ones

5) it is better to wait for period of 3 years to expire then sell your plot . return advance cheque of Rs 2 lakhs which you have not yet deposited to the purchaser .
Ajay Sethi
Advocate, Mumbai
23383 Answers
1229 Consultations
5.0 on 5.0
Hello, 


1. Landed property  sold  is a short term capital asset when held for 36 months or less. To arrive at the Short Term Capital Gains(STCG) – From the total Sale Price of the asset deduct cost of acquisition, expenses directly to sale, cost of improvements,if any, also deduct exemptions allowed under section 54,the resulting amount is the Short Term Capital Gain.In your case  there is no mechanism whereby an exemption from Short Term Capital Gain could be availed, the entire amount which is  not invested shall be taxable under normal income tax slab.You should invest the amount within one year or should be used to purchase investment bonds which can avail you tax exemption for the temporary period till you reinvest the whole amount completely.

Since you are receiving the rest of the amount after May 2015, you can reinvest it in within one year i.e before the 2016 tax year to avoid any tax. The amount of 2,00,000/ if you deposit in the bank in your wife's name before this 2015 March 31,shall be taxable under normal slab , as per the existing tax slab limit this is to be an amount less than taxable limit.

2. If the landed property  held for more than 36 months it is considered a long term capital asset.Property held for more than 36 months and sold and reinvestedin one residential flat in India as per section 54F, subject to specified conditions.In long Term capital gain the cost inflation index can be made available of 
to gain and it is calculated as:
Cost of acquisition for the purpose of capital gains
    =  { Cost of acquisition x Cost  inflation index of the year of transfer} ÷  { Cost of inflation Index of the year in which purchased } 

 3.The said investment must be made in only one new residential property India within the specified time frames,ie, within one year prior to sale date or two years from the sale date or within three years for an under-construction property The Long Term Capital Gain exemption can be claimed in the proportion of net sale proceeds, ie., the  sale amount, resulting from sale of old plot of land reinvested into a new house . Where the cost of new house exceeds the net sale proceeds resulting from sale of old plot, the entire  The Long Term Capital Gain should be exempted from tax. However, where the cost of new house is lower than the net sale proceeds, The Long Term Capital Gain  is exempt from tax in proportion of the cost of new house to the net sale proceeds. Hence, the balance The Long Term Capital Gain  shall be taxed at 20%. Additionally, if total taxable income during financial year (FY) 2014-15 exceeds Rs.1 crore, surcharge at 10% on basic rate (i.e. 20%) should be applied. Further, an education cess of 3% on basic as well as surcharge (if any) is applicable.

4. The proceeds you have from the sale of the old plot should be used to buy a new house within one year, if not Tax is payable on the  amount as per the existing income tax slab .So you cannot avail any LTCG. however  in a wise way can avoid tax till you invest  the entire amount in next tax year
S J Mathew
Advocate, Mumbai
1954 Answers
66 Consultations
5.0 on 5.0
1. If the house is in your wife's name, she has to purchase the dwelling house after selling her said house and claim exemption from taxable income, not you,

2. If the property is sold after 3 years of its purchase, the profit after indexation, will be treated as long term capital gain attracting 20% capital gain tax.

3 Just wait for less than one month to ensure that the property is sold after 3 years of its purchase and the gain is termed as long term capital gain.
Krishna Kishore Ganguly
Advocate, Kolkata
12143 Answers
233 Consultations
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you can invest that amount in purchase of any immovable property within 3 years from the date of sell. if property has been retained for three years or more then you get 3 years period to invest otherwise you are liable to pay wealth tax on the sale amount. but according to TP Act a sale is said to be completed when seller gives possession to the buyer , three year shall be count from the date when you give possession. if property has been retained less than three years then you have one year to invest it and save tax. you are the ostensible owner so you can invest that money in the name of your wife. if you want to invest it in your name than it shall be treated as gift and you are liable to pay 30% tax over it.
Shivendra Pratap Singh
Advocate, Lucknow
2792 Answers
41 Consultations
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