When a property is sold, the gains are liable to tax.
Investing the gains in another property within the stipulated time
exempts you from this tax. In case you sold a property, you are liable
to pay capital gains tax. Any gain or loss arising on transfer of a
property is subject to tax provisions under the head 'Capital Gains'.
According to the Income Tax Act, a 'capital asset' means property of any
kind, which is held by an individual, whether connected with his
business profession or not. Any property flat, house, building, site,
farm house, commercial property etc is subject to capital gains on its
sale transfer.
Gains from sale transfer subject to tax
It is not only the sale
of a property that triggers capital gains. Even certain specified kinds
of transfers are deemed as sale and any gain thereon is subject to
capital gains tax. Transfer of property means an act by which one person
conveys property to another. The income arising on transfer of a
capital asset is subject to capital gains tax if there is a transfer of a
capital asset during the previous year. A transfer is deemed to have
taken place on the date on which possession has been given of the
property. If payment is received but the transfer has not been effected
it will not be treated as a sale transaction. Under the income tax law,
capital assets may be of two types: Long-term capital asset Short-term
capital asset In case a property has been held for more than 36 months,
the capital gain arising there on is treated as long-term capital gains.
In case the property is transferred or sold after it was held for less
than 36 months, the income will be treated as short-term capital gains.
The period of holding of a capital asset
determines its taxability whether it is a long-term capital asset or
short-term capital asset, and accordingly, whether you have incurred a
long-term or short term capital gain loss.
Arriving at capital gains
The exact amount of capital gains is arrived at by
applying the Cost Inflation Index (CII).This index is published by the
Income Tax Department. The present worth of a property is arrived at by
applying the CII to the cost of the property as well as any improvements
made to it. This is deducted from the sale amount received by the
transferor from the transferee to arrive at the capital gains.
Avenues for exemption
Some tax planning can save tax under Section 54EC in
respect of long-term capital gains. You can invest the gains in a
residential property or in capital gains bonds. It needs to be ensured
that the conditions prescribed under the Section are strictly complied
with, or else the amount claimed as exempt can be made subject to tax.
Under Section 54 of the Income Tax Act, in order to
avoid paying capital gains tax, you should have bought a residential
property within a period of one year before or should do so two years
after the date on which the transfer took place. You can also construct a
residential property within a period of three years after the date of
transfer. In these cases, if the amount of the capital gains is equal to
or less than the cost of the new property, the capital gains will not
be charged to tax at all.
In case the new house is sold within a period of
three years of its purchase or construction, for the purpose of
computing capital gains in respect of the new property, the cost will be
reduced by the amount of the capital gains.
Capital gains account
The amount of capital gains which is not appropriated
towards the purchase of a new property, before the date of furnishing
the income tax returns can be deposited in a 'Capital Gains Account
Scheme' with a specified bank. The amount should be deposited before the
due date for filing the income tax returns.
The amount used for the purpose of purchase or
construction of a new property together with the amount deposited in the
account will be deemed to be the cost of the new property. In case the
amount deposited in the account is not used wholly or partly for the
purchase or construction of a new property within the specified period,
the amount not used will be charged to tax as income of the previous
year in which the period of three years from the date of the transfer of
the original property expires.
Long-term bonds
Under Section 54EC, you can also invest the capital
gains within six months of transfer in long-term bonds of the National
Highways Authority of India and Rural Electrification Corporation of
India Ltd. Investments in these during one financial year cannot be more
than Rs 50 lakhs.
Contact Prestige Residency sales office to Know More @ 022 25985951 - 55
No comments:
Post a Comment