By VINEET AGARWAL,
KPMG.
The Income -Tax Act,
1961 (IT Act) provides specific relief to an individual & HUF (Hindu
undivided family from long-term gains
realised from the sale of a property that has been held for 36 months (3 years)
or more.
The following 5 (five
facts) can be kept in mind to minimise tax liability on such gains.
1. Indexation
benefit..!
In order to take care
of inflation over a period of time, IT Act allows indexation of the purchase
cost to bring it at par with the current rates.
Indexation rates are
notified at the beginning of every financial year. The base year for this
purpose is 1981-82 & indexation rate for that year was set at 100.
The indexation rate
for the current tax year 2012 13 is set at 852.
The indexed cost of
the property Idexed cost of the can be calculated as:
Indexed
cost =
Original
cost X (Indexation rate for year of sale / Indexation rate for the year of
purchase)
LTCG (Long term
capital gains) is calculated by reducing the indexed cost of acquisition of the
house property from the sale value.
You should ensure
that benefit of indexation is taken into account while calculating LTCG from
sale of property because this helps in reducing the gains liable to tax.
The benefit of
indexation is not available to a NRI (non-resident Indian)
2. Purchase
of residential house property..!
In order to claim
income tax exemption, an individual or / HUF can purchase a residential house
property within a period of two years (24 Months) after the date of sale of
property or / one year (12 Month) before the date of sale.
In such a case, the
taxable LTCG would be reduced by the amount invested in the new residential
property.
3.
Construction of residential house property:
An individual or /
HUF can also get income tax exemption through construction of a residential
house property, provided construction is completed within three years (36
Months) from the date of sale of original house property.
The date of
commencement of con struction is not relevant & construction can start
earlier also. However, it should get completed within three years (36 Months)
from the date of sale.
4. Capital
Gains Account Scheme:
It is possible that
the capital gains realised may not be invested im mediately after the sale of
the property.
In such cases, in
order to remain eligible for income tax exemption, the amount can be deposited
in CGAS (capital gains account scheme) with specified banks before the due date
of filing income tax return of the year in which property is sold.
The amount deposited
is then to be utilised within a period of two years (24 Months) for purchase
& three years (3 years) for construction of residential property.
In case, the amount
is not fully utilised, the balance shall become chargeable to income tax.
5.
Withdrawal of Income Tax Exemption..!
It is important to
keep in mind that in case the newly purchased / constructed property is sold
within 36 months (3 years), the income tax exemption is withdrawn.
For the purpose of
computing capital gain in such cases, the cost of the residential property
shall be reduced by the amount of exemption claimed in earlier years.
About the author
Mr. VINEET AGARWAL
is a Director in KPMG. The views expressed are personal
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