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  • Category: Investments

    Sale of apartment without capital gain

    Confused about investing the sale proceeds of an apartment in Mutual Funds/FD and its bearing on Income Tax. Know about this from our experts in this page.

    I want to sell my house for approximately 20 lakhs. Can I invest the whole amount in Bank FD or mutual funds. Consider there is no capital gain as there is no appreciation in property value. I bought my house 3 years and 4 months ago. I am a retired person where my annual income is approximately 2 lakhs. I am not filing tax return.

  • Answers

    6 Answers found.
  • From June 2013, when a buyer buys house property costing more than Rs 50 lakhs, he has to deduct TDS when he pays to the seller. This has been laid out in Section 194-IA of the Income Tax Act.
    In your case as the sale consideration is less than 50 lakhs the person who is paying you need not to deduct TDS and so you need not to bother for filing of return for getting it back as a refund.
    Another thing is as there is no appreciation in the property so the capital gain is not there.
    The last thing which you have already mentioned that your income is only 2 lakh in a year and you are senior citizen so there is no tax liability and you need not to fill the return.
    So everything fitting in place and you can invest your 20 lakhs wherever you want.

    Thoughts exchanged is knowledge gained.

  • You are selling a house after 3 years wherein we take the purchase price and the sales price is the same. The purchase price minus the current sale price alone will NOT give us long-term capital gain or loss in your case. There is also the factor of cost inflation index(CII) that is announced every year. So, even if you buy and sell price is the apparently the same, when CII is taken into consideration, there would some long-term capital adjustment. So please check with a professional before you start the proceedings. Because if there is a long-term capital loss to be carried over for future adjustment, one needs to file the tax return for the year of sale.

    If there is a Gain, then the common instrument of investment chosen to claim tax exemption are national highway authority of India/Rural Electrification Corporation (NHAI/REC) bonds within 6 months from the date of sale
    The name of the person selling and the name of the person for FD should be same. You can go or NHAI bonds that are exempted from Capital gains. You can consider distributing your investment in all three arms (FD,MF,NHAI/REC).

  • Capital gain is the difference between the higher selling price and the lower buying. cost. Generally when people sell real estate after a few years they get a higher selling price than the original cost. The difference is the gain or income or profit from that capital transaction. So it is called Capital Gain.

    When you say you are going to sell for twenty lakhs and considering there is no capital gains,then it means that your original purchase price was 20 lakhs or below.

    The IT department gets information of high value transactions from the registrar office and they keep a tab of these. They can correlate the transaction with the returns submitted in relation to the PAN, as the details are also available in the registration records and the deed.. However it can also happen that in the maze of thousands of returns a relatively lesser amount transaction can get ignored also.

    Please find out if there is a 'fair Market value' (FMV) record for the properties in your area for each year or period. The stamp value will be calculated based on the FMV. Undervaluation will not be permitted. Even if you are selling the property below the FMV, as per the recent amendments,for capital gains FMV or selling price whichever is higher is taken.

    So before concluding the deal please verify if such a FMV is in vogue in your area form theSRO and you should comply with that.

    In case you have complied with the FMV and still there is no capital gains, then you need not worry.

    You have to show the transaction in the particular schedule/column in the IT return which asks for the indexed cost and sales cost. As there is no capital gains you need not pay any capital gains tax. You can use the money as you wish. If you keep in FD only the interest earned on it will be taxable.

    However if the selling price is higher, then you can take the Inflation Indexed value for the transaction. Now the base is 2001. You can get the Inflation Index for the year of purchase and the index on the year of selling. From that you can find what would be the indexed value for the original cost ,as on date of selling. That will be the indexed cost. Now, the difference between the sales price and indexed cost value is the amount to be reckoned for capital gains tax.

    To avoid capital gains tax, you have to invest the whole amount of capital gains in the capital gains bonds within six months of the sale transaction.

  • As there is no appreciation in the cost of the apartment and you are not an income taxpayer, It will not attract any Capital gain tax. But it is better to consult before taking a decision a professional tax consultant.
    To avoid risk I advise you to invest in NHAI bonds which are exempted from tax under capital gains. You have to do this within six months from the date sale deed registration. You can also invest in FD and Mutual funds also. You can distribute the amount evenly on these three instruments.

    always confident

  • Selling of house property after 3 years is covered under long term transactions and as per income tax laws the gain derived from such transaction is treated as long term capital gain and is taxable after indexation benefit.

    In your case as this is a high value transaction you can show it in your IT return and it will be in tax records for future and you will not be having any query from the I T deptt though chances of such queries are rare due to their random nature.

    While filling the I T return you have to mention your regular income like pension etc and as per your data it is clear that you will not be paying any tax and this return is only for record purposes.

    So filing return is upto your judgement and the money received by you by sale of your flat can be invested in any investment scheme/ bank/ share market etc without any hitch.

    Knowledge is power.

  • Since you are selling your house after 3 years it will be long term capital gain or loss depending upon the computation, wherein the indexed cost of aquisition will be reduced from sale proceeds to give the exact position.

    As you say that there is no appreciation in property value then it can be presumed that the cost of aquisition was also the same as the sale proceed value. What you perceive as appreciation will differ if the actual sale proceeds is different from purchase value.

    In case there is no appreciation then in such case loss can be incurred and hence the loss can be carried forward to be set off from any future capital gain if any arises till 8 years.
    But for that you will have to file your return and disclose the sale proceeds under capital gain head in the return or ITR.
    Since you are retired person and your annual income is not taxable hence you are not filing return. Bitbitbis advisable to file annual return just forbsakee of information of the Government as many a times they send notice to people do non filing of tax returns.

    Also towt you know that the sale proceed which you have received in your bank will be reported by bank to the department which in turn may ask you for the source of such deposit and in case of absence of tax return you will have to produce all other documents related to property and proceeds.

    You can deposit the sum received in FD or mutual fund but must also consider that infuture any receipts from such investment and your current annual income of Rs. 2 lakhs will be counted together to see that you are falling in tax bracket or not. If yes, then in that case you will have to file your tax return and pay tax also.

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