Long-term capital gains can be adjusted

I am employed in a public sector company. Our housing society had purchased 22 acres of agricultural land in Vizag in 1981 and initially registered it with the society. The Society developed the site and plots were allotted in 1991 to its members. The Society has registered the plots for Rs 15, 000 each.

I request you to advise me on the following:

1. I have an offer for outright sale of the plot for Rs 68 lakh. What is the tax implication on the amount to be received? If I purchase a house/apartment with this money, can I save any tax?

2. If I let the plot out for development (for construction of apartments) the builder is offering four or five apartments of 1, 000 sq. ft (which will take two years for construction). If the builder offers two flats and pays an additional Rs 20 lakh as cash , what are the tax implications?

3. I will be retiring in 2015. If I sell the plots after my retirement, will there be any tax saving.

— P S Rao

The plot, being a capital asset, will entail payment of capital gains tax, when sold. The rate of tax on long term gains would be 20 per cent. There would be an additional surcharge as well. In your case, the capital gains would be Rs 67 lakh if you have registered the property after April 1991.The capital gains tax will be Rs 13.4 lakh. If you invest the entire capital gains in a property, you will be exempted from paying capital gain tax.

Regarding your second query, if you handover the possession of the property to the builder, the capital gains will arise. It appears that you would get a part of the built-up area as consideration for the transfer of a part of the undivided share in land to the builder.

The full value of the consideration arising to you from this should be taken as the cost of construction of the built-up area allotted to you in the course of the agreement between you and the builder. If you wish to sell a few flats, the cost of acquisition would be the cost incurred for construction of your share in the built-up area by the builder and the gains would be computed accordingly.

When you retire and if your income is nil or it does not exceed the maximum amount chargeable to tax, capital gains arise on account of the sale will be adjusted against this. However, considering the amount of capital gains the benefit will be marginal.

I have sold an ancestral property which was bequeathed to me by my mother-in-law in May 2010 for Rs 33 lakh. The money is lying in my SB account since then. I have not been able to decide on purchasing any property/flat with this amount. I own a flat jointly with my husband. My gross total income is approximately Rs 3 lakh in FY 2010-11 out of income from property and interest bank deposits. I am availing of a deduction of Rs 1 lakh U/S 80C, which includes half the share in housing loan repayment.

I had taken a housing loan jointly with my husband for Rs 10 lakh in Aug 2005 against which an amount of Rs 7 lakh is still outstanding. The rental income and EMI is shared on 50 per cent basis with my husband.

I have to file returns for FY 2010-11 by March this year. If I do not buy a property bythen, I shall have to pay about Rs 6 lakh as capital gains tax.

Is liquidation of outstanding housing loan a good proposition than availing I-T benefits?

I seek your advice on how to invest this surplus.

— Neelam Gupta

The concerned section states that in the sale of residential house and subsequent purchase of another property, the following conditions are to be met.

New residential assets must be purchased one year before the sale of the house or within two years from the completion of the deal. . If a new house is constructed, it should be done within three years from the sale of the residential property. Since you have purchased the house in 2005, you are not allowed to set off the capital gains against the house.

If the property is not purchased immediately, the capital gain is to be invested in a bank under the capital gain account scheme.

If you can purchase a plot and construct within three years (before April 2013), then you can ask for I-T exemption. This, for not depositing your gains in any capital gains scheme. If you are not going to construct the house, it is advisable to pay 20 per cent of the gains as tax. You may also need to pay interest for delay in depositing the capital gains tax.

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