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capital gains tax - the right way to save


Dear Experts,

Question regarding Capital Gain

I have recently inherited 2 floors of a lease hold property. This is a 3 floor property and is located at NCR. Recently, a builder has approached me and offered to rebuild the property. He is suggesting that I could either opt for 2 floors and consideration (cheque amount) or I could opt for 1 floor and consideration (cheque amount) in lieu of my share.

Let us suppose for this exercise, value of each newly build floor to be 200/- and the consideration being 100/-.

With the available amount, within the next few months, I propose to buy a flat for self occupation, which could be priced at 75/- or 150/- (option is mine).

Consider the current CSI value to be 10/- and the possibility of investment in govt bonds to be 50/-

My questions are:

Will the capital gain be applicable on complete transaction ( 2 floors and consideration) or will be on 1 floor and consideration or just consideration as the case maybe?

How can I save on Capital Gain tax while keeping the transaction in cheque?

And which of the 2 is a better option? Considering that I stay at Bangalore.

Thanxs in Anticipation

Shanta

 
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FIN

You may also evaluate the option of amount spent on renovation of the new property acquired by you. However the bills and receipts of the payments may be carefully preserved.

 
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AUDITOR

DEAR MADOM

You to follow this procedure for saving tax on capital gain

Long Term Capital Gain from the Transfer of Residential House Property (Section 54)
The exemption under the Section 54 is available only an individual or a HUF who transfers (or sells) a residential house/property that results in a long-term capital gain, and then invests the amount of gain in acquiring a new residential house. This exemption is available subject to fulfillment of the following requirements: 
(i) The transferor shall be an individual or the HUF, 
(ii) The asset to be transferred must be of long-term capital asset, being buildings or lands appurtenant thereto, being a residential house,
(iii) The income from such residential house shall be assessable under the head "Income from House Property", 
(iv) The transferor assessee should purchase a residential house in India within a period of one year before or two years from the date of transfer or construct a residential house within three years from the date of the transfer of the original house. (Construction must be completed within these 3 years.), and
(v) The new house property purchased or constructed has not been transferred within a period of three years from the date of purchase or construction.
 
Amount of Exemption. The amount of exemption under section 54 is

  • Equal to the amount of the capital gain if cost of new house property is more than the capital gain, or
  • Equal to the cost of the new house property if the cost is less than the capital gain.


Deposit Scheme under Section 54. Where the amount of capital gain is not so utilized for the purchase or construction of a new residential house before the due date of furnishing of the return of income, it shall be deposited by him on or before the due date in an account with a public sector bank in accordance with the Capital Gain Account Scheme, 1988. The amount already utilized on the new house together with the amount deposited shall be deemed to be the amount utilized for the purchase of new house under section 54. If the amount deposited is not utilised for the purpose of purchase or construction of new house within the stipulated period, then the amount not so utilised will be treated as long term capital gain of the previous year in which the period of three years expires. In such case the assessee is entitled to withdraw the amount from the bank.

Consequences of Selling the New House Before 3-years. If the new house property is transferred within a period of three years from the date of the purchase or construction, the amount of capital gains arising therefrom, together with the amount of gains exempted earlier, will be chargeable to tax in the year of sale of the house property. To attain this, the amount of exemption under section 54 shall be reduced from the cost of acquisition to the new house, while calculating short-term capital gains on the transfer of the new asset.

 
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