Sale of land and capitol gains tax
Guest
(Querist) 01 March 2012
This query is : Resolved
Till what time one can keep money to re-invest in property to avoid capitol gains tax ?
Thank you !
A V Vishal
(Expert) 01 March 2012
In that case there are two major investment options for availing exemptions with respect to these long-term capital gains.
Not only income tax laws provide concessional rates of 20% for taxation of long-term capital gains, but also offer various avenues for claiming such long-term capital gains as exempt if investment in certain assets is made within a certain period of time.
As mentioned above, there are two avenues of investment available for claiming such exemption. First through purchase or construction of a residential house and second through investment in bonds of National Highway Authority of India and Rural Electrification Corporation of India.
The option of investing in a residential house can be availed in respect of capital gains arising on sale of any long-term asset. However, the amount to be invested would be different if the capital gains result from sale of residential house property. In respect of capital gains arising on sale of residential house property, you are required to invest only the net capital gains. The net capital gains are arrived at after deducting the indexed cost from the net sale consideration received. However, in respect of long-term capital gains arising from sale of any asset other than residential house, like commercial property, plot of land or sale of jewellery etc, you are required to invest the net sale consideration after deducting expenses incurred in connection with such sale.
You can invest in bonds for claiming exemption on long-term gains on any property. However you are required to invest only the net capital gains and not the full sale consideration.
For claiming exemption through investment in residential house, you are required to purchase the residential house within a period of two years or construct a new house within three years from the date of transfer of the original assets. You can claim the benefits even if you have purchased a house within one year before the date of sale of the assets. However, in case you have not invested the full amount which you are required to invest by the time your due date for filing of return comes, you are required to deposit the same in a capital gains account with a bank as per the schemes notified by the government.
In the second option, you are required to make the investment within a period of six months from the date of sale of the original asset. But, if this period of six months gets extended beyond the due date of filing of your income tax return, you are not required to deposit the money in any capital gains account.
An example will make you understand it better. Suppose you have sold a plot of land on March 31, 2011, and have earned capital gains of Rs50 lakh. In this case you have time up to September 30, 2011 to invest the capital gains of Rs50 lakh, though the due date for filing of your tax return is July 31, 2011. In this case, while filing your tax return you are not required to deposit the amount of capital gains in any earmarked account as is required for investment in house property.
The investment can even be made after you have filed your return. But do not forget to claim the exemption if you are planning to invest in such bonds before September 30, 2011.
The benefit of tax exemption through investment in residential property is available to individual and HUF assesses only. However the option of claiming tax exemption through investment in bonds is available to all assesses.
In addition to the quantum of amount you are required to invest, there is another requirement to be fulfilled i.e. the number of properties you can own. There are no restrictions on the number of houses you can own as long as you want to invest long-term capital gains arising on sale of your residential house property. But if you want to claim exemption in respect of capital gains of assets other than house property, there is a restriction on the number of houses you can own on the date of purchase of the new house. You can only own one house in addition to the new house being purchased or constructed. If you own more than one house as on the date of purchase or construction of new house, you cannot claim the benefit of tax exemption on sale of such assets through investment in residential house.
For investment in bonds there is only one restriction with regard to the quantum of investment in a financial year. You cannot invest more than Rs50 lakh in bonds for availing the tax exemption in a financial year. However, in case the period of six months within which you are required to make the investment falls in two financial years, you can make the investment of Rs50 lakh in each financial year and claim the tax benefits to the long-term capital gains of up to Rs1 crore.
Guest
(Querist) 02 March 2012
Thank you so much for a detailed reply !
Mine are ancestral agricultural small pieces of land(which now fall in residential category because of also being used for making houses)
These lands are being sold separately at different intervals for small amounts.1st one being 30th Dec 2010.I received the amount in May 2011(Sent by the person who's got power of attorney)
1.Do I have time to invest the amount till Dec 2012 ?
2.Do I have to show the amount in this year's Returns ?
Thank you !
