taxation law regarding purchasing and selling of the property
i have purchased a under construction property(A) in june 2009. Now i have purchased a property(B) in may 2013 under 20:80 scheme. The possession of the property B in December 2016, whereas the property A is ready. Now i want to sell off the property A to pay the 80% of B which is due in december 2016. Am i taxable for the sale of property A. if yes is there a way to avoid taxes.
In case you have you have purchased the property "A" vide registered sale deed and also you have changed the owners name in the municipal records by mutation, if you have done that, in that case you need to pay taxes.
If the change of ownership records in the municpal records, then no need to pay taxes.
See...property comes under the title of fixed assets. Fixed assets are those which are immovable . Now, you had purchased an under construction property in 2009. you want to sell it in 2013..at this stage..If I am not wrong. So , the money which you will get as sale proceeds or as the sell price will come under Long-term Capital Gains. Capital Gains , is that head of income which arises due to sale of assets. Long-term assets mean, those assets which you have owned more than 36 months or 36 months. These 36 months are applicable for assets like propeties. For securities, long-term assets mean , assets owned for more than 18 months. The normal tax rate is 20% of the profit after indexation. Indexation, is discussed below.
Now, coming to your doubt, firstly you can definately claim an exemption under section 54 of the Income Tax Act, 1961, on the long-term capital gain on the sale of a house. "To avail of this exemption, you must use the entire profit to either buy another house within two years or construct one in three years. If you had already bought a second house within a year before selling the first one, you could still avail of the tax exemption.
One of the advantages associated with long-term capital gains is the inclusion of indexation while determining the profit. Indexation is a method through which the seller is able to inflate the value of his assets. Since inflation reduces the value of an asset over time, it is essential to increase the initial cost of the house to calculate its current value. This is done by multiplying the original cost price with a factor that is issued by the Central Board of Direct Taxes. This factor tracks the increase in the general price level, or inflation, and is known as the cost inflation index (CII). It is notified by the central government for every financial year. The Income Tax Act considers 1981-82 as the base year with a cost inflation index of 100. So, the CII for 1982-83 is 109, and so on.
The indexed purchase price can be calculated as-purchase price x (CII for year of sale / CII for year of purchase). The indexation of purchase price helps to reduce the net capital gain, thereby slashing the tax burden for the seller.
Now, in this case , if you own the under - construction property in your name and the new house ( B) in your name too, then you cannot claim exemption under section 54F of the Income tax Act, 1961. Under Section 54F, the sale proceeds should be invested only in a residential property , not a commercial property or a vacant plot of land. However, to avail of this benefit, you should not own more than one house.
The sale proceeds will be calculated on the basis of the valuation adopted by the state's Stamp Duty and Registration Authority and will not be the amount mentioned in the deed of conveyance. This is intended to cover the cases where a portion of the sale price is received by the seller as unaccounted for cash.
I hope this suffices.
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