Analysis & Concept of Capital Gains from sale of immovable property

In general concept, any property which is sold within the span of 3 years from the date of acquisition/possession will be considered as Income on Short Term Capital Gains as per Income Tax Act’ 1961.

However if the above time limit exceeds beyond three years, the proceeds from the transfer of House Property will be considered under Income from Long Term Capital Gains under Income Tax Act’ 1961.

In both the cases the Indexed Cost of Acquisition has to be considered while calculating the Capital Gains. It is based on the Inflation Index as released by RBI (Reserve Bank of India) in accordance with Government of India & Income Tax Deptt.

However an Individual/HUF can claim tax benefits U/s 54F of Income Tax Act’ 1961 if the sale proceeds arrives under Long Term Capital Gains. If an assesse acquires a new house with one year before the transfer (or within 2 years from the date of transfer) or constructs a new house within 3 years from the date of transfer & the amount of Capital Gains is less than the cost of the new house property, the entire amount of Capital Gains is exempted from tax. On the other hand, if the amount of Capital Gains is greater than the cost of new House Property, the difference between the amount of Capital Gains & the cost of the new house is chargeable to tax. In case the whole sale consideration is not invested & only a part of the sales consideration invested, then the exemption shall be allowed proportionately.

Amount Exempt = Capital Gain x Amount Invested

Net Sale Consideration

Further to be considered that, where the capital gain is fully not appropriated or uitilised by the assesse for purchase or construction of the new residential house before the due date of filling return of income , it shall be deposited by assesse on or before due date of furnishing return in the Deposit Account in any branch (except rural branch) of public sector bank in accordance with the Capital Gains Accounts Scheme’ 1988. Any amount utilised part thereof will be deemed to be considered exemption u/s 54 & vice versa.

It is also to be considered that if the new house property acquired from capital gains is transferred within the period of 3 years from the date of its purchase or construction, then amount of capital gain arising therefrom, together with the amount of capital gain exempted earlier will be chargeable to tax in the year of the sale of new house property,

An assesse can also claim deduction U/s 54EC for Investments in “Specified Assets” as per Income Tax Act’ 1961 within the 6 months from the date of transfer of asset. An assesse should invest the whole (or any part) capital gain in Long-term specified assets, which means any bond redeemable after 3 years from date of issue or or after 1st April’ 2006, described as follows :

1. By the National Highways Authority of India. (NHAI)
2. By the Rural Electrification Corporation Ltd. (REC)

Further to be mentioned that the limit for investment is restricted upto Rs. 50 Lakhs for any financial year.

Hope the above illustrations will work your way & do please feel to revert for any further clarifications on the same.