Union Budget 2021 Outcome:
The consideration so received or
accrued as a result of the transfer of the residential unit shall be
adopted to calculate the capital gain if the stamp duty value is up to
120% (earlier 110%) of the consideration. The transfer of “residential
unit” means an independent housing unit is the first time allotted to
anyone between 12 November 2020 and 30 June 2021 for a
consideration not exceeding Rs. 2 crores.
Short-Term or Long-Term Capital Asset
The land is a short term capital asset when held for 36 months or less
(i.e. up to 3 years). If held for more than 36 months, it is considered a
long-term capital asset. So tax implications vary based on the
duration for which you own an asset.
Calculation of Capital Gains
To arrive at the Short Term Capital Gains – From the total Sale Price of the asset deduct the cost of acquisition, expenses directly to a sale, cost of improvements(if any) also remove
exemptions allowed under section 54(as applicable, we’ll see below what
these are) – > the resulting amount is the Short Term Capital Gain.
In the case of Long Term Capital Assets, the only difference is that one can deduct the Indexed
Cost of Acquisition/Indexed Cost of Improvements from the sale price.
Indexation is done by applying CII (cost inflation index). This
increases your cost base (and lowers your gains) since the purchase
price is adjusted for the impact of inflation.
Tax Rates
Exemption from Gains that Save Tax Section 54F (In case its a Long-term capital asset)
If you are using your entire sale proceeds to buy a house property, you
may end up paying no tax on your gains when – You satisfy all these
conditions
Purchase one house within one year before the date of transfer or two years after that
Construct one place within three years after the date of transfer
You do not sell this house within three years of purchase or construction
This new house purchased or constructed must be situated in India
You should not own more than one residential house (other than the new one) on the date of transfer
You
do not purchase any residential home within two years or construct
within three years after such date (other
than the new one).
When you satisfy these conditions and invest entire sale proceeds
towards the new house – you won’t pay any tax on your gains. However, invest a portion of the sale proceeds. The exemption will be the
proportion of the invested amount to the sale price or exemption, i.e.
cost of new house x capital gains/net consideration.
By Investing in Capital Gains Account Scheme
Finding a suitable seller, arranging the requisite funds and getting the
paperwork in place for a new property can be a time-consuming and challenging process. Fortunately, the Income Tax Department understands
these limitations.
Suppose you have not been able to invest your capital gains until the date of filing of income tax return
(usually 31 July) of the financial year in which you have sold your
property. In that case, you can deposit your gains in a PSU bank or other
banks as per the Capital Gains Account Scheme, 1988. And in your return, claim this as an exemption from your capital gains; you don’t have to pay tax on it.
However,
you must invest this money you have deposited within the period
specified by the bank; if you fail to do so, your deposit shall be
treated as capital gains.
Section 54EC (applicable in case it is a long term capital asset)–Purchasing Capital Gains Bonds
What happens if you do not intend to purchase another property, there
is no use in investing the amount in a Capital Gains Account Scheme. In
such a case, you can still save the tax on your capital gains by
supporting them in certain bonds. Bonds issued by the National Highway
Authority of India (NHAI) or Rural Electrification Corporation (REC)
have been specified for this purpose. These are redeemable after three years
and must not be sold before the lapse of 3 years from the date of sale
of the house property.
You are allowed a period of 6 months to invest in these bonds –
through to claim this exemption, you will have to invest
before the return filing date. The budget for 2014 has specified that
you can support a maximum of Rs 50lakhs in a financial year in
these bonds.
A proposed amendment under Section 54EC
Budget 2018
has, among other things, proposed an amendment to Section 54EC of the Income-tax
Act. This section currently provides for an exemption of long term
capital gains(“LTCG”) on sale of any Long Term Capital
Asset provided the capital gains are invested within six months from the
date of transfer, in the specific long term specified assets viz any bond,
redeemable after three years and issued on or after the 1st day of
April 2007 by the National Highways Authority of India constituted
under section 3 of the National Highways Authority of India Act, 1988 or
by the Rural Electrification Corporation Limited.
Vide the budget, the government has proposed to amend the above section by
restricting its scope only to capital gains arising from long-term
capital assets, land, building, or both. It is also proposed to
provide that specified long-term asset, for making any investment under
the section on or after the 1 April 2018, shall mean any bond,
redeemable after five years as against the earlier three years
and issued on or after 1 April 2018 by the National Highways Authority
of India or by the Rural Electrification Corporation Limited or any
other bond notified by the Central Government in this behalf.
This
amendment will take effect from 1 April 2019 and will, accordingly,
apply to the assessment year 2019-20 and subsequent
assessment years.
Tax exemptions in case of short-term capital gain
For short-term capital gain, the person can benefit from the basic exemption limit of the income tax slabs.
Hence, the following persons can take the benefit of the basic exemption limit.
Indian residents (below 60 years): Income tax will be exempt on
short-term capital gain on sale of the property if the profit (or total
taxable income) stays within Rs.2,50,000.
Senior citizens (age
60 – 80 years): Income tax will be exempt on short-term capital gain on
the sale of the property if the profit (or total taxable income) stays
within Rs.3,00,000.
Super senior citizens (older than 80 years):
Income tax will be exempt from short-term capital gain on sale of the
property if the profit (or total taxable income) stays within
Rs.5,00,000.
Hindu Undivided Family (HUF): Income tax will be
exempt on short-term capital gain on sale of the property if the profit
(or total taxable income) stays within Rs.2,50,000.
Non-residential
Indians: Income tax will be exempt on short-term capital gain on the property sale if the profit (or total taxable income) stays within
Rs.2,50,000.
Hence, the only benefit of exemption in short-term capital gain is an unutilised basic exemption limit, as explained above.
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Posted by Aashima
Team TaxaJ