Remember These While Transferring Sale Proceeds from One Property to Another
Apr 24, 2019 Real Estate News
Property investment without any doubt is a gold mine for investors. The returns and gains from selling the property are higher than any other investment sector. The capital gains that you acquire from selling a property are taxable under the Income Tax law in our country. They are taxed depending on whether they are long term capital gains are short term capital gains.
However, if you are planning to invest the capital gains on another property, there are specific provisions under the Income-tax laws that can exempt you from paying the same. According to Section 54 of the IT Act, if you are investing your long term capital gains in a residential property, then you are exempted from paying tax on the capital gain. Similarly, under Section 54(F) of IT Act, even if the property sold is a non - residential property, but the capital gains are invested in a residential property, then you are exempted from paying the tax on capital gains.
We list down everything that one needs to know while transferring the sale proceeds from one property to another:
a. The number of capital gains arising from the transfer of residential property
b. The amount invested in another property
For example, after selling your property, you received the capital gain of Rs 5 Lacs. If you decide to invest Rs 4 lacs from the capital gain in another property, then the remaining Rs 1 lac will be taxed as capital gains.
However, if you are planning to invest the capital gains on another property, there are specific provisions under the Income-tax laws that can exempt you from paying the same. According to Section 54 of the IT Act, if you are investing your long term capital gains in a residential property, then you are exempted from paying tax on the capital gain. Similarly, under Section 54(F) of IT Act, even if the property sold is a non - residential property, but the capital gains are invested in a residential property, then you are exempted from paying the tax on capital gains.
We list down everything that one needs to know while transferring the sale proceeds from one property to another:
Eligibility
To avail the benefit of the same, the seller needs to be an individual or HUF (Hindu Undivided Family). HUF includes all members of the family, including the extended family. HUF also includes Sikhs, Jain and Buddhists.Holding period
The benefit for the same is only given if the residential property has been held for the long term, i.e., for more than 24 months. According to the Mumbai Bench of Income Tax Appellate Tribunal, the date of allotment is considered for the LTCG rather than the date of registration.Invest in the new property
One of the essential things to remember is that to avail the benefits one must invest the capital gains within one year of sale from the previous property. If an individual is planning to construct the house, then the construction must be completed within three years from the date of sale of the property.Compulsory acquisition
In this case, the date of acquisition or construction is determined from the date of receipt of compensation.One property only
The capital gains received from selling a property can only be invested in one residential property. However, if you are selling multiple properties and investing the capital gains from them in one single property, then you are eligible for the exemption given the transaction is completed within the given time frame.The property must be in India
To enjoy the capital gain tax exemption, you must invest them in the property that is in India. If you are looking to invest in the property that is outside of the country boundaries, then you will not be able to enjoy the tax exemption.Exemption amount
A lot of people are not aware of the amount that is provided for the exemption. The lower of either are exempted:a. The number of capital gains arising from the transfer of residential property
b. The amount invested in another property
For example, after selling your property, you received the capital gain of Rs 5 Lacs. If you decide to invest Rs 4 lacs from the capital gain in another property, then the remaining Rs 1 lac will be taxed as capital gains.
Holding again
After you have invested your capital gains in another property but you are not happy with it and want to sell it. Then, in that case, you either must let go off the exemption on the capital gains.Unutilized amount scheme
If the entire capital gain or some part of it is not utilised till the date of filing income tax, then the used amount can be put into a Capital Gain Deposit Account Scheme and enjoy the benefits of the same. All the private and public banks provide this facility.Unutilized amount
If the unutilized amount is still sitting in the deposit account and have not been utilised within the given time frame, then they are taxed under long term capital gains.Other sources
It is not mandatory for the buyers to make use of the same amount that they have received as capital gains to exempt from taxes. They can use the money from other sources as well and still claim for the tax exemption.Looking for property portal?
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