Query reg. capital gains tax

[saurabh]

If I sell a plot of land, in what way can I save paying capital gains
tax?

[raji agg]

hi saurabh

i u have held the plot for less than 3 years then the difference
between sale price and purchase price is short term capital gain and u
can not avail any exemption thereon.

I u have held the plot for more than three years then the profit on
sale of plot wld be long term capital gain. Capital gain is calculated
by indexing cost of purchase of plot.

u have number of options to save capital gains

a) u can invest the sale proceeds in specified infraturcture bonds
and avail exemption of capital gain. The ivestment has to be made
within 6 months of sale of plot. ( maximum amt that can be invested Rs
50 lacs in one year)

b) u can use the sale proceeds for construction of residential house
(not repair or renovation) within certain time period provided u
fulfill certain conditions.

c) u can purchase residential house within certain period before or
after sale of plot provided u fulfil certain conditions.

d) if u do not want to do anything then u can pay tax on capital gains
and tax rate is 20% (which is concessional rate) even if ur income
falls in 30% slab rate.

best of luck

raji agg

[Saurabh Rindani]

Dear Raji agg,

Thank you for your kind reply.

> b) u can use the sale proceeds for construction of residential house
> (not repair or renovation) within certain time period provided u
> fulfill certain conditions.

Could you please let me know whithin what time period? And what conditions?

>
> c) u can purchase residential house within certain period before or
> after sale of plot provided u fulfil certain conditions.
>

Same questions here, as for b).

> d) if u do not want to do anything then u can pay tax on capital gains
> and tax rate is 20% (which is concessional rate) even if ur income
> falls in 30% slab rate.
>

Can you please confirm that the tax rate is 20%. I thought that it was
10% for long term capital gains.

Another question is: how can establish the cost of purchase -- which
was about 20 years ago? What document would be needed?

Thanks and regards,
Saurabh

[raji agg]

Hi Saurabh,

Please refer to ur queries.

u can use the sale proceeds for construction of residential house /
purchase of residential house

within certain time period provided u fulfill certain conditions.

Conditions
1. The seller must be an Individual or a Hindu undivided family.
2. The asset transferred must be a long term capital asset other than
a residential house.
3. Purchase or Construction conditions
a) Person has purchased, within one year before the date of sale or
two years after the date of sale a residential
house
b) Constructed within 3 years after the date of sale a residential
house
4. The date of commencement of construction is not valid. The
construction of the new house must be completed
within 3 years.
5. The new house must not be sold within 3 years of its purchased or
construction.
6. The seller must not own, on the date of sale, more than one
residential house (other than the new house). He
should also not purchase with a period of two years
such purchase or construct within a period of 3 years after
such date any residential house other than new house.
7. If the cost of new house is more than the sale proceeds of the plot
then entire amount of capital gain is exempt.
8. If the sale proceeds of old plot are not used for the purchase or
construction of new house before the date of
furnishing of income tax return (due date of filing of
return) which ever is earlier then the unutilised amount
should be deposited in any public sector bank in
accordance with the Capital Gains Scheme, 1988. The
amount so deposited is to be utilised for purchase or
construction of new residential house within 2 / 3 years
for purchase / construction of new house from date of
sale. If the amount so deposited is not utilised fully for
purchase / construction of new house within stipulated
period, the proportionate amount shall be treated as
long term capital gain in the year in which period of
3 years from the date of sale expires.
9. The seller must not sell the new residential house with in three
years of its purchase or construction or if the
seller purchases within 2 years or constructs within 3
years a residential house other than the new residential
house.

Can you please confirm that the tax rate is 20%. I thought that it was
10% for long term capital gains.

In the case of an individual or HUF (being resident) Income tax on
long term capital gains shall be calculated at the rate of 20%.

Another question is: how can establish the cost of purchase -- which
was about 20 years ago? What document would be needed?

Copy of Sale Deed would establish the cost of purchase. If the
property is inherited, then the cost to the person, from whom the
property was inherited.


I have tried to explain provisions in lay man’s language. The capital
gains provisions are complicated. Please take help of a good local tax
expert or ca.


Raji agg

[Saurabh Rindani]

Dear Raji,

Thank you for all the trouble to explain. But I have to still try and
digest it!

Best regards,
Saurabh