Have you sold your house property? Are you worried Income tax has to be paid on Capital gains? Do you know that there is legal way and you will not be required to pay income tax on sale of house property? Read on and save income tax on Capital gain on sale of house property. We will help you save capital gain through effective Tax planning on capital gains.
Understanding Capital Gain
How to calculate Capital Gains
Income Tax on Short Term Capital Gain |Income Tax on Long Term Capital Gain | CII |Cost Inflation Index | TDS on immovable property
How to save Income tax on Capital Gain
Construct new House | Purchase new house | Capital Gain Accounts Scheme | 54EC Bonds - NHAI Bonds orRECL Bonds | Difference between 54EC bonds and Capital Gain account Scheme
Income tax on Gain on sale of house property, will be either term as long term gain or short term gain.
Que: What is long term capital gain and short term capital gain?
When investments are held for more than 36 months, such gains are termed as Long Term Capital Gain(LTCG). However, for shares, mutual funds, listed bonds & debentures, zero coupon bonds, the period is 12 months.
When investments held for less than 36 months, such gains are termed as Short Term Capital Gain (STCG). However, for shares, mutual funds, listed bonds & debentures, zero coupon bonds, the period is 12 months. (For treatment of capital gain on shares visit here )
Que: What is the income tax rate payable on sale of house property?
Tax on Sale of house property or any capital asset is determined on basis on nature of sale.
Long term capital gain : If sale is long term capital gain (LTCG) Income tax rate payable is 20% .
Short term capital gain: If sale is Short term capital gain (STCG) Income tax rate payable is as per income tax slab applicable to your total income. Find out the latest income tax slab for financial year.
Long term capital gain : If sale is long term capital gain (LTCG) Income tax rate payable is 20% .
Short term capital gain: If sale is Short term capital gain (STCG) Income tax rate payable is as per income tax slab applicable to your total income. Find out the latest income tax slab for financial year.
Yes: from 01.06.2013, if property value exceed Rs 50lac then in that case it is liability of buyer to deduct TDS @ 1% and deposit with the government.
More details here: TDS on Immovable property
Que:
How to calculate gain on sale of capital assets?
Capital gain on sale of Capital asset / or house property is calculated by deducting
Sales proceeds – transfer expenses
Less: Cost of Acquisition + Cost of Improvement.
Resulting amount is either STCG/ LTCG
Sales proceeds – transfer expenses
Less: Cost of Acquisition + Cost of Improvement.
Resulting amount is either STCG/ LTCG
Lets take an example of sale of House property:
Mr India sell a Property For Rs 10 lakh ( transfer charges Rs 20, 000)
He has purchased this property for Rs 2.5 lakhs inclusive of Stamp charges.
Investment made in section 54 ie purchased new house property in 3 years of sale –Rs 25 lakhs
He has purchased this property for Rs 2.5 lakhs inclusive of Stamp charges.
Investment made in section 54 ie purchased new house property in 3 years of sale –Rs 25 lakhs
| Computation of Short Term Capital Gain | Computation of Long Term Capital Gain | |||
| Full consideration | 100.00 | Full consideration | 100.00 | |
| Less: Expenses on Transfer | (2.00) | Less: Expenses on Transfer | (2.00) | |
| Net Consideration | 98.00 | Net Consideration | 98.00 | |
| Less: Cost of Acquisition | (2.50) | Less: Indexed Cost of Acquisition | (50.00) | |
| Less: Cost of Improvement | 0.00 | Less: Indexed Cost of Improvement | 0.00 | |
| STCG | 95.50 | LTCG | 48.00 | |
| Less: Exemption u/s 54B/D/G | 0.00 | Less: Exemption u/s 54 to 54GB | (25.00) | |
| Taxable STCG | 95.50 | Taxable LTCG | 23.00 | |
Income Tax on STCG @ 30% ( as per applicable tax slab) | 28.65 | Income Tax on LTCG @ 20% | 4.60 | |
Que: How to calculate Indexed cost of Acquisition?
Cost of Acquisition * CII for year of Sale
CII for Year of Purchase
CII for Year of Purchase
Income tax saving tip : If you sold House property for longer period ie more than 36 month, your income tax liability is minimum. You get Indexation benefit and income tax can be further saved by investing net proceeds/ Capital gain in section 54. In short, sell your property only after 36 months.
Que: I have sold property in 2013, What is cost inflation index for 2013 ?
Cost Inflation index for 2013 is 939.
Cost inflation index for last 32 years as released by CBDT is given below for reference.
| Year | CII | Year | CII | ||
| 1981-82 | 100 | 1982-83 | 109 | ||
| 1983-84 | 116 | 1984-85 | 125 | ||
| 1985-86 | 133 | 1986-87 | 140 | ||
| 1987-88 | 150 | 1988-89 | 161 | ||
| 1989-90 | 172 | 1990-91 | 182 | ||
| 1991-92 | 199 | 1992-93 | 223 | ||
| 1993-94 | 244 | 1994-95 | 259 | ||
| 1995-96 | 281 | 1996-97 | 305 | ||
| 1997-98 | 331 | 1998-99 | 351 | ||
| 1999-00 | 389 | 2000-01 | 406 | ||
| 2001-02 | 426 | 2002-03 | 447 | ||
| 2003-04 | 463 | 2004-05 | 480 | ||
| 2005-06 | 497 | 2006-07 | 519 | ||
| 2007-08 | 551 | 2008-09 | 582 | ||
| 2009-10 | 632 | 2010-11 | 711 | ||
| 2011-12 | 785 | 2012-13 | 852 | ||
| 2013-14 | 939 |
Que:
How can I Save Income tax on long term capital gain?
You can save income tax on capital gain by opting for any of these option.
Option 1:
Purchase a new house u/s Section 54 to save income tax on capital gain
Option 2:
Investment of capital gain in certain capital bonds under section 54EC [Section 54EC]
Option 1:
Purchase a new house u/s Section 54 to save income tax on capital gain
Option 2:
Investment of capital gain in certain capital bonds under section 54EC [Section 54EC]
Option 1: Purchase a new home u/s Section 54 to save income tax on long Term capital gain of house property.
Eligible assesses. Benefit is available only to Individual & HUF
Conditions to be fulfilled
• Benefit is available only if sale is long-term capital gain.
• There should be a transfer of residential house (buildings or lands appurtenant thereto)
• It must be Income from such house should be chargeable under the head Income from house property
• A new residential house should be
• Benefit is available only if sale is long-term capital gain.
• There should be a transfer of residential house (buildings or lands appurtenant thereto)
• It must be Income from such house should be chargeable under the head Income from house property
• A new residential house should be
purchased within 1 year before or 2 years after the date of transfer (or)
constructed within a period of 3 years after the date of transfer.
Que: How much capital gain is Exempt from Income tax?
If cost of new residential house >= Long term Capital gains , entire capital gains is exempt.
If cost of new residential house < Long term Capital gains,, capital gains to the extent of cost of new residential house is only exempt.
If cost of new residential house < Long term Capital gains,, capital gains to the extent of cost of new residential house is only exempt.
Que: What if new asset so purchased is sold before 3 years?
If the new asset is transferred before 3 years from the date of its acquisition, then cost of the asset will be reduced by capital gains exempted earlier for computing short-term capital gains.
Que: I am not able to decide new property to purchase, What can I Do?
The amount not utilized before the due date of filing return ( July 31) shall be kept in
Capital gain account scheme (CGAS) of the nationalized bank.
The amount should be utilized within the prescribed time i.e within 3 years from the date of transfer.
The amount not utilized within the prescribed time shall be treated as LTCG of the Previous Year in which the prescribed period expires.
Capital gain account scheme (CGAS) of the nationalized bank.
The amount should be utilized within the prescribed time i.e within 3 years from the date of transfer.
The amount not utilized within the prescribed time shall be treated as LTCG of the Previous Year in which the prescribed period expires.
For instance, let’s say, you sold a property in April 2012. The capital gain made should be used to either buy a house by April 2014 or construct a house by 2015. Until then, you can deposit the money in a CGAS account before the date of filing returns, which in this case was be July 31 2013, to save tax.
If you do not acquire the new property till April 2015, the LTCG would be taxable in the fiscal year 2015-16.
If you do not acquire the new property till April 2015, the LTCG would be taxable in the fiscal year 2015-16.
Que: How many types of CGAS accounts are there?
There are two types of accounts in the CGAS provision.
The first account is like a savings deposit account . Withdrawals may be made from the account from time to time subject to other conditions of the scheme. This account is suitable for people who are planning to construct a house over a period of time. The amount withdrawn should be used for the purpose of purchase or construction of a house. It should be used for the purpose within 60 days of the withdrawal. Any unused amount should be deposited back in the same account.
The first account is like a savings deposit account . Withdrawals may be made from the account from time to time subject to other conditions of the scheme. This account is suitable for people who are planning to construct a house over a period of time. The amount withdrawn should be used for the purpose of purchase or construction of a house. It should be used for the purpose within 60 days of the withdrawal. Any unused amount should be deposited back in the same account.
The second account is like a term deposit which is payable after a fixed period of time. The deposits may be made in one lump sum or in installments at any time. The amount should be deposited before the due date for filing income tax returns. The amount can be used in accordance with any scheme the central government may frame on this behalf.
Option 2: Investment of capital gain in certain capital bonds [Section 54EC]
Eligible assesses. Benefit is available only to any assesses
Conditions to be fulfilled for section 54EC
- There should be transfer of a long-term capital asset.
- Such asset can also be a depreciable asset held for more than 36 months.
- The capital gains arising from such transfer should be invested in a long-term specified asset within 6 months from the date of transfer.
- Long-term specified asset means specified bonds, redeemable after 3 years, issued by
the National Highways Authority of India (NHAI) or
the Rural Electrification Corporation Limited (RECL). - The assessee should not transfer or convert or avail loan or advance on the security of such bonds for a period of 3 years from the date of acquisition of such bonds.
- The investment made in specified bonds should not exceed Rs 50 Lacs.
Que: Will I get full income tax exemption if I invest in these Capital Gain bonds?
Capital gains or amount invested in specified bonds (subject to maximum limit of Rs 50 Lacs), whichever is lower.
Que: What is the Rate of return of these 54EC bonds?
Generally rate of return is 6%. Capital Gain bonds are issued in last quarter of year. The bond is available for three years and can be redeemed only after three years
Que :What if 54EC Bonds so purchased is sold before 3 years?
In case of transfer or conversion of 54EC bonds or availing loan or advance on security of Capital Gain bonds before the expiry of 3 years, the capital gain exempted earlier shall be taxed as long-term capital gain in the year of violation of condition.
Que:I have made capital gain of Rs 1 crore in dec . This mean I can only save tax to the tune of Rs 50 lakh from bonds?
If you sell the house between October and March, you come in the six months limit between two fiscal years. In that case, you can invest in Capital Gain bonds Rs. 1 crore in total over two financial years and get the tax benefit.
Que: I have made gain of Rs 15 lac on sale of property of Rs 25 lac. Please advice if I need to invest full Rs 25 lac or just Rs 15 lac ie capital gain amount?
Reply: You need to invest Rs 15 lac ie Capital gain amount in 54EC capital gain Bonds or Capital Gain Account scheme.
Que:
What is Difference between 54EC bonds and Capital Gain account Scheme?
Reply: Below chart will help in identifying the difference between 54EC bonds and Capital Gain account Scheme
| Capital Gain Account Scheme | 54EC Bonds | |
| Benefit Available to | Individual and HUF only | Individual and HUF, Companies, Partnership firms, Corporations |
| Time limit for investment | Amount of capital gain need to be invested before filing return | Amount of capital gain need to be invested within 6 months from sale |
| Maximum Amount that can be invested | Rs 100 crore in a year | Rs 50 Lacs in a year |
| Type of capital gain for which this is allowed | You can invest in CGAS only in case of sale of House Property | Investment can be made in 54EC if there is capital gain due to sale of house property, Shares, or any other commercial property |
Que : Where can Capital Gain Account scheme opened?
Reply: Capital Gain Account scheme ( CGAS), to save income tax on sale of capital gain can be opened with all Nationalised banks. Recently RBI has allowed private banks Like IDBI
Que: Which is better for investment in 54EC bonds- REC bonds or NHAI bonds?
Ans: Both bonds – viz Rural Electrification Bonds ( REC bonds) and National Highway Authority bonds (NHAI Bonds) have AAA CRISIL rating . Difference between NHAI and REC bonds can be understood from this table:
| Bond | RECL | NHAI |
| Coupon/Interest rate/Yield | 6% | 6% |
| Rating | AAA / Stable (CRISIL) | AAA / Stable (CRISIL) |
| Tax Status | Tax Status | Taxable |
| Tax Benefit | SEC 54 EC | SEC 54 EC |
| Minimum (Rs.) | 10,000 | 10,000 |
| Maximum (Rs.) | 50 Lakhs in a Financial Year across RECL & NHAI | 50 Lakhs in a Financial Year across RECL & NHAI |
| Tenor | 3 Years | 3 Years |
| Interest Date | 30th June | 1st April |
| Put/Call/Premature Encashment | Bullet repayment at the time of Maturity | Bullet repayment at the time of Maturity |
| Mode Of Interest | Annual | Annual |
