Budget 2012- Capital Gain Tax on Sale of Residential Property & Tax Planning
CA Srikant Agarwal
Taxability of Capital gain arising on
sale of residential property and tax planning thereof
after considering amendment made by Finance Bill 2012
We know that investment in
residential property or Flats is one of the common
investment avenue for individuals.
Here we are trying to summarise the tax
implication on sale of residential property and tax
planning to save tax on the Capital Gain arising on the sale of such property.
On the sale of a residential
property either Short Term Capital gain (herein after referred to as
STCG) or Long Term Capital Gain
(herein after referred to as LTCG) may arise which depends on the time period
for which such property is held. If the residential
property is sold within 36 months from the date of acquisition of such property then it will be
treated as STCG and if such property is sold after a period of 36 months from
the date of acquisition of such property then it will
be treated as LTCG.
The amount of Capital gain is calculated in the
below format:
|
Computation of Short Term Capital Gain
|
Computation of Long Term Capital
Gain
| ||
| Full consideration |
XXX
|
Full consideration |
XXX
|
| Less: Expenses on Transfer |
XX
|
Less: Expenses on Transfer |
XX
|
| Net Consideration |
XXX
|
Net Consideration |
XXX
|
| Less: Cost of Acquisition |
XX
|
Less: Indexed Cost of Acquisition |
XX
|
| Less: Cost of Improvement |
XX
|
Less: Indexed Cost of Improvement |
XX
|
| STCG |
XXX
|
LTCG |
XXX
|
| Less: Exemption u/s 54B/D/G |
XX
|
Less: Exemption u/s 54 to 54GB |
XX
|
| Taxable STCG |
XXX
|
Taxable LTCG |
XXX
|
The rate of tax applicable for STCG arising on
transfer of
residential property would be the slab rates
applicable for individuals/ HUF. However LTCG would be taxable @ 20%. If the
Total Income (before considering LTCG) is below the maximum amount not
chargeable to tax (i.e for Previous year 2012-13, Rs 2,00,000 for individual, Rs
2,50,000 for senior citizen below 80 years of age and Rs 5,00,000 for senior
citizen above 80 years of age) then the LTCG would be reduced by such shortfall
amount and the balance LTCG would be taxable @ 20% (Sec 112 of Income Tax Act 1961).
An individual can save the amount of tax payable,
on Capital gain arising on transfer of
residential property, substantially by investing the
money u/s 54, 54EC and 54GB of Income Tax Act 1961. It
may be noted that section 54GB has been introduced via Finance Bill 2012 and
hence is available for Capital Gain arising during Financial year 2012-13
onwards.
The details of Section 54, 54EC and 54GB is as
below:
(i) Capital Gains on sale of residential
house [Section 54]
Eligible assessees .
Individual & HUF
Conditions to be fulfilled
Ø There should be a
transfer of residential house (buildings or lands
appurtenant thereto)
Ø It must be a long-term capital asset
Ø Income from such house should be chargeable
under the head Income from house property
Ø A new residential house should be
o purchased within 1 year
before or 2 years after the date of
transfer (or)
o constructed within a
period of 3 years after the date of
transfer.
Quantum of
Exemption
Ø If cost of new residential house ≥ Capital
gains (LTCG only) , entire capital gains is exempt.
Ø If cost of new residential house < Capital
gains(LTCG only), capital gains to the extent of cost of new residential house
is exempt
Consequences of
transfer of new asset 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.
Unutilised amount
Ø The amount not utilised before the due date of
filing return shall be kept in Capital gain account scheme of the nationalized
bank.
Ø The amount should be utilized within the
prescribed time i.e within 3 years from the date of
transfer.
Ø The amount not utilized within the prescribed
time shall be treated as LTCG of the PY in which the prescribed period
expires.
(ii) Capital Gains not chargeable on
investment in certain bonds [Section 54EC]
Eligible assessee . Any
assessee
Conditions to be fulfilled
Ø There should be
transfer of a long-term capital asset.
Ø Such asset can also be a depreciable asset
held for more than 36 months.
Ø The capital gains arising from such
transfer should be invested in a long-term specified
asset within 6 months from the date of
transfer.
Ø 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).
Ø 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.
Ø The investment made in specified bonds should
not exceed Rs 50 Lacs.
Quantum of
exemption
Ø Capital gains or amount invested in specified
bonds (subject to maximum limit of Rs 50 Lacs), whichever is lower.
Violation of condition
Ø In case of transfer
or conversion of such bonds or availing loan or advance on security of such
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.
(iii) LTCG on sale of
residential property Exempted for Investment in Equity
Shares of Eligible company [Introduced via Finance Act 2012 and hence applicable
from Financial Year 2012-13 on wards ] [Section 54GB]
Eligible assessees: Individuals
/ HUFs
Conditions to be fulfilled
Ø There should be
transfer of residential
property.
Ø It must be a long term Capital Asset.
Ø The amount is invested by the assessee for
subscription in the equity shares of eligible company before due date of
furnishing return u/s 139.
Ø The company utilizes the amount invested by
the assessee for the purchase of new asset (i.e new Plant & Machinery except
old used plant & machinery, vehicle, office appliances etc) within 1 year
from the date of subscription of shares by the
assessee.
Quantum of
exemption
Ø If cost of new asset ≥ Net sale consideration
of original asset, entire capital gains is exempt.
Ø If cost of new asset < Net sale
consideration of original asset, only proportionate capital gains is exempt
i.e.
|
LTCG X Cost of new
Asset
|
|
Net Consideration
|
Unutilised amount
Ø The amount not utilised by the company before
the due date of filing return by the assessee u/s 139, shall be kept in the
specified account.
Ø The amount should be utilized within the
prescribed time i.e within 1 years from the
date of subscription of shares by the assessee.
Ø The amount not utilized within the prescribed
time shall be treated as LTCG of the assessee of the Previous Year in which the
prescribed period expires for the proportionate amount only.
Consequences if the Equity Shares of
Eligible Company is transferred within a period of 5 years
Ø Short-term capital gains or
Long Term Capital Gain as the case may be would arise
on transfer of the Equity Shares; and
Ø The capital gains exempt earlier under section
54GB would be taxable as long-term capital gains in the year of
transfer
Practical issue with regard to date of
transfer and computation of capital gain:
In all the above section i.e 54, 54EC and 54GB,
the period of 3 years, 6 months and due date of filing return u/s 139
respectively is being computed with regard to the date
of transfer. Here the date
of transfer will be the date
on which the possession of the property is given to the buyer. This can be
explained with the help of following example:
Example 1: Mr X enters into an
agreement to sell the House property on 01.01.2010 with Mr Y for Rs 20 lacs. Mr
X handover the possession of the House property to Mr Y on 15.02.2010. Mr Y make
the payment on 30.04.2010. The House property is registered in the name of Mr Y
on 30.06.2010. When the transfer has taken place.
Ans: 15.02.2010. The
transfer is deemed to have taken place on the handover
of the possession of the property.
Example 2: Mr X enters into an
agreement to sale a House Property on 01.01.2010 with Mr Y for Rs 20 lacs. Mr X
received Rs 5 Lacs on 15.02.2010 and on the same day handover the possession of
House Property to Mr Y. Mr Y makes the balance payment of Rs 15 Lacs on
30.09.2010. The House Property is registered in the name of Mr Y on 30.12.2010.
Determine the date of
transfer and capital Gain taxability in the hands of
Mr X for Previous year 2009-10 and 2010-11.
Ans: The Date of transfer would be 15.02.2010
since on that day the possession of the property was given to Mr Y .
Capital gain for Previous Year 2009-10:
Full value of consideration Rs 20
lacs
Less: Cost of acquisition (Say) Rs 7 lacs
Capital
Gain
Capital Gain for Previous Year 2010-11: Nil
Example 3: Mr X enters into an
agreement to sale his house property to Mr Y (his tenant) on 01.01.2010 at an
agreed price of Rs 20 Lacs. Mr Y paid Rs 5 Lacs on 15.04.2010 and balance Rs 15
lacs on 30.09.2010. The House property is registered in the name of Mr Y on
15.04.2011. What is the date of transfer and capital gain applicable to Mr X for
previous year 2009-10, 2010-11 and 2011-12.
Ans: Date of transfer would be 01.01.2010 since
the tenant is already is in possession of the property and agreement to sale is
entered on 01.01.2010.
Capital gain for Previous Year 2009-10:
Full value of consideration Rs 20
lacs
Less: Cost of acquisition (Say) Rs 7 lacs
Capital
Gain
Capital Gain for Previous Year 2010-11: Nil
Capital Gain for Previous Year 2011-12: Nil
Regards,
CA Srikant Agarwal
Shared Services (Finance) (ER)
CA Srikant Agarwal
Shared Services (Finance) (ER)
No comments:
Post a Comment