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LTCG from house property exempt in specified conditions

LiveMint logoLiveMint 11-06-2014 Parizad Sirwalla

I sold a plot for `56 lakh in March 2014, which was bought at `36 lakh (as per the cost of index valuation since it was held for three years). In March 2014, I purchased a plot for `3.5 lakh and have spent `10 lakh on construction till date. How much long-term capital gain (LTCG) tax do I have to pay?


The LTCG resulting from sale of plot, which has been held for more than 36 months, can be claimed as exempt from capital gains tax by re-investing the net sale proceeds in a residential house as per section 54F, subject to specified conditions.

One can claim the LTCG exemption in the proportion of net sale proceeds resulting from sale of old plot of land re-invested into an under-construction property (i.e. new house). Where the cost of new house exceeds the net sale proceeds resulting from sale of old plot, entire LTCG should be exempt from tax. However, where the cost of new house is lower than the net sale proceeds, LTCG is exempt from tax in proportion of cost of new house to the net sale proceeds. Hence, the balance LTCG shall be taxed at 20%. Additionally, if total taxable income in FY14 exceeds `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.

One of the specified conditions requires that at the time of claiming LTCG exemption, you should not own more than one house (other than the new house/apartment), on the date of sale of the plot.

As you propose to re-invest the net sale proceeds in an under-construction property, it has to be ensured that the construction of new residential property should be completed within three years from the sale date of old plot. Apart from the purchase of new residential plot and `10 lakh spent on construction till date for the new residential house, if you further propose to spend the unutilized sale proceeds on construction, then the unutilized balance sale proceeds should be deposited into Capital Gains Account Scheme (CGAS) before the due date of filing tax return for FY14, which is 31 July.

For the LTCG exemption computation, the amount spent on purchase of new plot, the amount spent on construction till due date of filing personal tax return and the amount deposited into CGAS till the due date of filing the tax return will be considered as cost of new property. While the domestic tax law does not explicitly mention that residential house includes a plot, however, reference can be drawn from a circular wherein it is specified that cost of the residential house would include cost of land.

Additionally, you could invest the LTCG in specified bonds within six months subject to the cap of `50 lakh per fiscal.

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