Capital Gains Tax For Real Estate Taxation and Legal

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Taxation and Legal - Capital Gains Tax For Real Estate

Sections 2, 45 to 55 under Capital Gains:
Section 2 defines that land or house property held for not more than 36 months is
Short Term Capital Gain (STCG). Otherwise, it is Long Term Capital Gain (LTCG).
Section 48 defines Computation of Capital Gains (STCG) = Consideration - expenses
on transfer - cost of acquisition - cost of improvement
LTCG = Consideration - expenses on transfer - INDEXED cost of acquisition - INDEXED
cost of improvement
Section 50C defines special provisions regarding consideration where consideration
received is less than the value adopted by the stamp dity valuation authority, the value
adopted by the stamp duty valuation authority shall be taken as the consideration (wef
01/04/2002)
The tax on capital gain on transfer of house property are as follows:
a. LTCG on transfer of house property is taxed at 20%
b. STCG is added to income from other sources, and a taxpayer pays tax at the rate
applicable to him/her.
Section 54 concerns the sale of residential house and subsequent purchase of another
property. The conditions are:
a. the taxpayer must be an individual or HUF
b. the residential house sold must be a long term asset
c. the new residential house must be
purchased within a period (T-1) to (T+2) years, or
constructed within a period (T) to (T+3) years
d. It does not matter whether or not
The house sold was not self-occupied
The taxpayer owned any other house property when the sale and purchase is
done
e. Concession in taxes if the capital gains (on sale of old house) is greater than the
cost of the new house, then only such excess capital gain is taxed. But if the
capital gain (on sale of old house) is less than or equal to the cost of the new
house, then the entire capital gain is not taxed.
e. 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.
e. 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.
Section 54F concerns the sale of any asset other than residential house and
subsequent purchase of another property. The conditions are:
h. the taxpayer must be an individual or HUF
h. the asset sold must not be a residential house (if it is, S54 applies)
h. the asset sold must be a long term asset
h. the new residential house must be
purchased within a period (T-1) to (T+2) years, or
constructed within a period (T) to (T+3) years
l. It does not matter if the taxpayer owned any other house property when the sale
and purchase is done
l. Concession in taxes if the cost of the new house is NOT less than the net
consideration in respect of the old asset, then the entire capital gain is not taxed.
But if the cost of the new house is less than the net consideration in respect of the
old asset, the proportionate capital gain is not taxed.
If the taxpayer sells the new house within three years of its purchase or construction,
then the amount of capital gain on old asset, which was not taxed, will now (in year of
sale of new house) be charged to tax as LTCG.
If the taxpayer purchases within two years from the sale of the old asset, or
constructs within three years from the sale of the old asset, any residential house other
than the new house, then the amount of capital gain on old asset which was not
taxed will now (in years when such additional house property is purchased) be charged
to tax as LTCG.
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.

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