Practical issues in capital gain on sale of property

Post sale of the property, the seller will have to take certain precautions to save on capital gain tax. Some of them are discussed in this article.

1. Deposit the sale consideration in SB Account: After the sale takes place, the seller can deposit the demand draft/cash/cheque in his regular bank account. He can also deposit the said amount in a Fixed Deposit.

2. Capital Gain in Sale – The seller is liable to pay capital gain tax (sale price minus indexed cost of purchase). If the period of holding the property is less than 36 months, then it is classified as Short Term Capital Gain and is liable to be taxed at normal (slab) rates. However, if the period of holding the property is more than 36 months, it is classified as Long Term Capital Gain (LTCG). LTCG is subject to a lower rate of tax and also eligible for tax exemption, provided reinvestments are done.

3. Capital Gain Bonds – In case of LTCG, one can invest in capital Gain bonds. However, the investment is limited to Rs.50 Lakhs and such investment has to be done within 6 months from the date of sale. So, those who want to invest in bonds have to do it within 6 months, otherwise, this benefit will lapse.

4. Reinvestment Property – It has to be a house property. Investment in commercial or industrial properties is not eligible for exemption. House property includes investment in a residential site/plot. However, within 3 years from the date of sale, a residential house must be constructed in the plot. If the house is not built within the given time, one will lose the exemption from tax.

5. Move the funds to capital gain account scheme. If the seller fails to reinvest the capital gains in another property (site/plot or flat or house) on or before the due date of filing the income tax return (for the year of sale), then he has to park the gains in Capital Gain Account Scheme. This scheme is available in all scheduled banks.

6. Payment of taxes – In the event the seller decides not to invest in bonds or reinvest in house property, he has to pay income tax. Such taxes are to be computed and paid as per the due dates of advance tax. For example, if the property is sold in July 2014, the capital gain tax to be paid as advance tax (30% by 15^th September, 30% by 15^th December and the balance amount by 15^th March 2015)

7. Filing the return – The seller has to compulsorily file Income Tax return on or before the due date provided he has capital gains in sale of property. Even if the reinvestment is done and there is no tax liability, he has to file the return.

Thought for the day

Stop worrying about what you have to lose and start focusing on what you have to gain.

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