Capital Gain arising from sale of residential property held for more than 3 years
Long Term Capital Gains [ LTCG ] earned from sale of residential house are exempt from income tax if the LTCG are invested for purchase or construction of another residential house under the Income Tax Act , 1961 [ I.T.Act ]. Salient features of this exemption are :
1. Tax Exemption :
.01 Total LTCG will be exempt from tax if the entire LTCG are invested in new residential house.
.02. If part of LTCG are invested in new house property, exemption will be granted on prorata basis.
2. Conditions :
.01 New house property is to be purchased within one year prior or two years after the sale of original house property.
.02 Alternatively New house property is to be constructed within three years after the sale of original house property.
.03 Such new house property should not be sold for a period of three years.
3. Unutilised Gains :
.01 The amount of capital gain which is not utilised for purchase or construction of new house before the due date of filing of tax return should be deposited in "Capital Gains Bank Account".
.02 Purchase or construction should be met out of balance held in such Capital Gains Account within the time limit of two or three years respectively.
4. Contravention :
.01 If the new residential property so purchased is sold within the period of three years, then the cost of purchase will be reduced by the amount of LTCG which are claimed as exempt earlier and net sale proceeds of new residential house sold will be taxed as STCG in the year of such sale.
.02 Balance of Capital Gains Bank Account not utilised for purchase or construction of new residential house within the stipulated time shall be charged to tax upon completion of three years from the date of sale of original asset .
5. Capital Gains - Computation :
.01 While calculating the LTCG , Indexed cost will replace the actual cost.
.02 Indexed cost is computed by adding to the purchase price the notified cost of living index for each year of holding.
.03 LTCG are arrived at by deducting such indexed cost from the sale price.
.04 In case of immovable properties, sale price is to be replaced by the valuation of the property determined by the State Registrar for stamp duty payable by the buyer if the same is higher.
6. Tax Rates :
.01 LTCG are taxed at 20% after cost Indexation.
.02 Short Term Capital Gains [ STCG ]are taxed at normal rates of tax applicable to the slab of net taxable income.
7. Capital Gains - Meaning :
.01 Profits and gains earned upon sale of any immovable or movable assets are taxed under the head of "Capital Gains" under the I.T.Act.
.02 Such gains are classified as "Long Term Capital Gains (LTCG)" if the assets are held for a period of more than 36 months and as "Short Term Capital Gains (STCG ) if held for lesser period.
.03 Gains of Shares of a Company or equity, debt or balanced schemes of mutual funds are defined as LTCG if the same are held for more than 12 months.
8. Disadvantage NRIs :
.01 Non Resident are at a disadvantage as against residents as re: LTCG of all assets as the basic threshold exemption limit is not deductible in case non-residents.
.02 Thus a non-resident wil be paying tax on gross amount of LTCG including the basic threshold exempt limit presently being INR 2,50,000.
.03 And as such entire LTCG will be taxed at 20% or 10% as the case may be from the first Rupee gain.
.04 STCG will be taxed at normal tax rates as applicable to the slab of net taxable income.