Raj is an engineer from Bangalore, has sold his land in native place for Rs. 75 lacs and wondering what to do with that money. Assumes he owns all the money and there is no liability for him to pay the tax if he has any profit for that transaction. He is not aware of the hefty tax payment on the capital gains. Also he had no clue on how to calculate the tax for capital gains. It is worrisome if income tax authority caught him and put the penalty of non payment of tax. It is the same scenario with many of the working generation who had no experience or learning on the income tax issues.
Capital Gains is one of the tricky trap which would put you in trouble if you are not planning for the tax liability. If you have enough knowledge on the capital gains and tax exemption associated with it, you could avoid the 100% tax on your profit. This article explores the important aspects on the capital gains and various rules involved on taxing the capital gains. Since I have already published many articles on the capital gains, this piece would serve as the compilation of all the articles and add up the missing point on other articles. I would look forward to your thoughts and queries. Please post it in the comments section.
also read:
- What is capital gains account scheme?
- Should I pay taxes for capital gains?
- Capital Loss and Tax Calculation
What is Capital Gains?
Any profit from selling the capital assets considered as the capital gains. So it can be shares, units of UTI, debentures and land. Also the following materials considered as the capital assets:
- furniture
- personal belongings
- agricultural land (subject to certain criteria)
- Special Bearer Bonds, 1991, Gold Deposit Bonds (1999 scheme), 6.5 per cent Gold Bonds, 7 per cent Gold Bonds, National Defence Gold Bonds issued by the Central Government and raw material held for the purpose of business is not termed as a capital asset.
- From the year 1973-74, jewellery is treated as a capital asset.
Different Types of Capital Gains
There is two types of capital gains.
- Short Term Capital Gains
- If you own the capital assets less than three years at the time of selling, then it is considered as the short term capital gains. In case of shares, mutual funds, equities, if you are selling with in one year after the purchase, it is considered as the short term capital gains.
- Long Term Capital Gains
- If you own the capital assets more than three years at the time of selling, then it is considered as the short term capital gains. In case of shares, mutual funds, equities, if you are selling after one year from the date of purchase, it is considered as the short term capital gains.
Capital Gains on Agricultural Land
When Agriculture Land is Capital Asset?
If the agricultural land is treated as the capital asset, then the sale of that land would fetch the capital gains. You must know the rules applied to find a land is whether it is capital asset or not.The following points are important to consider while deciding whether the agricultural land is coming under the capital assets:
- In any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or
- In any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette.
If the land is situated under municipality area where the population is above 10000 or the distance from the municiplaty to the specified land is less than 8 KM, then the land is not agricultural land.
Tax Exemption on Agriculture Land
If you have agriculture land and for the pat two year have been used for the farming activities, the sale of land will not attract the capital gains tax. The following are the list of rules when sale of agricultural land will not attract any capital gains tax.
- The land should have been used by the assessee or his parents with in two years immediately preceding the land sale or transfer date.
- The asses see should have been purchased the agricultural land with in two years immediately preceding the land sale or transfer date.
- The whole amount should have been used for purchasing the new agricultural land. Otherwise the difference amount will be charged for the capital gains tax.
- The new asset purchased should not sold with in three years of time.
- If the agricultural land should have been used for the agriculture purpose.
- Exemption is not available to a Hindu Undivided Famiy (HUF) or any other taxpayer.
Tax Exemptions on Capital Gains
In the above sections, we have learned about the capital gains and when you are liable to pay the capital gains. But, the good thing is that there is laws to help you get the complete tax exemption on your capital gains. Only thing is you should know the process of utilizing the capital gains amount.
To avoid paying the capital gains tax, you must buy a new property within two years or construct new house within three years. For example, if you are selling a capital asset on October 2010, there will be capital gains in the profit arise from the sale. To avoid that, you must buy another property before October 2012 or construct new house before October 2013. Here the problem is that, you must file the IT returns before July 31st of every year. In the above case, you have show the capital gains and pay the tax if you are not invested in buying a new house or constructed one.
Capital Gains Account Scheme
you must create a new Capital Gains Account Scheme in any of the nationalized bank and deposit the amount. This amount must be used for buying the house or constructions before the stipulated time given by the income tax act. If you are not doing so, the amount deposited in the account will be subject to the capital gains tax.
There is two types of accounts under this scheme. One is deposit account A, which is savings account. Second one is term deposit account B which is term deposit account.
- In the first option, the amount withdrawn should be utilized for the purpose within sixty days of the withdrawal. Any un-utilized amount should be redeposited in Deposit Account A. In case the amount deposited is not utilized wholly or partly for the purchase or construction of the new property within the period specified, then the un-utilized amount will be charged as income of the previous year in which the period of three years from the date of the transfer of the original property expires. Interest rates will be give at the savings bank interest rates.
- In the second option, it is similar to the term deposits. It comes with cumulative and non-cumulative. The interest rates would at par with the other fixed deposits offered by the bank.
- Important Points:
- The interest amount on this account is taxable.
- If you are selling the two different asset classes in different time, you need to open the two separate accounts.
- Using this deposit, you can not get any loans.
Summary
Are you facing the issues on managing the capital gains, if you need advice please post it in the comments section. This article talks more comprehensive details about the capital gains with various articles published in the site. If you are looking to learn more details on to the subject, please buy the book How to Save Tax on Capital Gains: AY 2013-14 which will be very useful for the beginner.
March 26, 2012 at 4:42 am
but how to calculate the income tax on capital gain eg. by solding the land in 75 lacs how much tax to be paid?if the money is not at all invested within three year to purchase a new house.
May 23, 2012 at 6:44 am
you have to pay 20% tax on the profit which can you find the deducted index cost of aqcuistion of house and expenses realted to house , index cost of improvement,the from the total amount recevied form the purchaser ,
now the question is what is the index cost of aqcuistion you can find with the formula =purchase of your home when u purchase *index number of that year in which tansaction happended and divided by the index number of the year in which u are purchase home
June 18, 2012 at 9:18 am
thank u for your guidence. i am having little more tedius problem in measuring 8 km distance for my property sold before four years. kindly inform me where and how i can contact u for consultation please. inform me your phone/ mobile number and address. my number is 9894402336. e mail. b_babuind@rediffmail.com. thank you.
March 29, 2012 at 5:11 am
such a nice article.. before i leave this page i want to thank you for this nice article
March 29, 2012 at 7:13 pm
HI,
Thank you for the comments.
- krishna
April 7, 2012 at 10:05 pm
Very informative article. This is my understanding that capital gains can also be saved by investing in 54 ec bonds to the max extent of 50 lacs in FY. Recently we had chosen this option. Could you please suggest which ITR is most relevant when one has capital gains and invested in 54 ec bonds?
April 9, 2012 at 11:37 pm
I got the possession of my house in 2009 but its registration was done in 2010. If I want to sell it now in 2012 whether it be treated as short term or long term capital gain ? Also whether I can reinvest into purchasing a plot of land instead of a house within two years time frame to avoid capital gain tax ?
April 11, 2012 at 7:35 am
What I want to know is why I should care? I mean, not to say that what you’ve got to say isn’t important, but I mean, it’s so generic. Everyone is just talking about this man. Give us something more, something that we can get behind so we can feel as passionately about it as you do.
April 30, 2012 at 1:38 pm
For things like this, I have a tax consultant. Any time I move money, sell something, buy something, anything I do at all related to money or assets, I let my tax consultant know about it. I recommend readers do the same! You’ll be better off assuming that the government wants to know everything – they pretty much do!
June 5, 2012 at 3:57 am
my husband is selling agricultural land of his father in patna of 11 kkatta valuing upto 22 lakhs. out of which we need to pay our builder 8 lacs for teh house we have taken. remaining amount we are thinking to utilize for buying a car worth 5 lacs and remaining we will keep it or try to utilise it by buying land in pune or gold bars from banks. In doing all this will we be charged taxes for the same and how can we save the 100% taxes . please help me out.
June 18, 2012 at 6:15 pm
Hello sanjukta,
Is the agricultural land is Capital Asset or not? Incase if it is not capital asset, then there is no tax on that. You can do what ever you want with that money.
If it is capital asset, then it attracts the capital gains. Then you have to follow these rules to get the 100% capital gains.
1. Buy a new agricultural land on Capital Gains (Only capital gains not the net sale)
2. Buy a residential property for the net sale of the Agricultural land
It is the only ways to save capital gains. You can not buy car or Jewell to avoid the taxes. Also you have to complete these transactions in the stipulated time.
If you have more doubts, please reply here.
Thanks,
Krishna
August 30, 2012 at 9:32 pm
dear krishna,
my father has sold an agriculture land recently and its been bought by a party for agriculture purpose only.
if in this case how much the tax will be it will be same 20% or any change will be? can you pls. Guide me?
regards
swamy
June 19, 2012 at 8:16 am
can one invest in property before filing tax to save money on second property. since money on second property in this scheme is taxable..
June 19, 2012 at 8:24 am
Hello Marayam,
No. It is not about the filing return, you have to see the financial year. It ends on 31st March. But, you will file the IT returns on July 31st. So, for the time duration keep in mind that you have to complete any transactions before the end of financial year.
Is this clear your doubts?
Thanks,
Krishna
June 23, 2012 at 8:57 pm
Sir
Thanks for your article. Its very informative.
1. My wife has sold a plot purchased in 2004. Can you help me in answering the below mentioned points?
1. I understand capital gains tax from your article and we have already deposited the amount.
2. Can we buy two plots in different locality and construct in one plot? Is it allowed ?
Regards
Mohan
June 28, 2012 at 12:39 am
Hi,
I am selling my ancestors land(non-agricultural) for 3500 less than market value,Total sale value is 21 lakhs, but as per guideline value is 4500. Now how much will the tax i need to pay. Property was purchased in 1931, transfered to my name in year 2010. How much is the amount of tax to be paid.
now if i am going to reinvest in land to avoid tax, do i need to reinvest the entire amount araising out of the sale of land or just the tax amount alone i need to reinvest in purchase of land or flat.
July 5, 2012 at 12:11 am
I sols a flat in March 2012 which I had bought in 2003.The capital gain amount of Rs 3 Lacs has been used for buying NHAI Bonds. How to reflect this in IT Returns and which form is to be filled online.I am a professional with 10+lacs annual income.
Regards
July 11, 2012 at 12:34 am
Dear sir I have sold my agriculture land in financial year 2008-2009 of rs. 3100000/- and this amount I deposited in my saving bank account
This agriculture land was my grand father ( patrak assest) and now this agricultural land sold by me above the circle rate. This land was situated at the village and there are not the population of 10000 in the village nad this village is not in the municplity area I mean it is not less than 8km from municpality. Is capital gain will be due on me. Pls suggest me
July 11, 2012 at 12:37 am
I m a farmer and I have not a pan card too.
July 11, 2012 at 3:15 am
Hello Dharmendra Kumar Saini,
After reading your details, i would think that you may not liable to pay the capital gains because the land is not a capital asset.
But, however you once check with lawyer in your home town whether legally you are safe.
Thanks,
Krishna
July 12, 2012 at 6:50 am
if the circle rate of the agricultural land is 300000/- per bigha or 3000000/- per accer but the agricultural land sale on the market rate which more higher than circle rate, then any capital gain will be raised on the difference ( market value- circle rate) or not.
July 13, 2012 at 6:43 am
Please let me know if the agricultural land is capital asset.
Thanks,
Krishna
September 27, 2012 at 12:00 pm
No it is not a capital assets
July 16, 2012 at 10:50 pm
I have 2 questions in mind:
1. Agricultural land ( 8km away from municipal area and population less than 10000) is sold doesn’t have capital gain tax, so can I use this money or is it compulsory I need to buy agricultural land.
2. How can I prove that the land is having the above mentioned conditions (8km n all, if talati not ready to issue certificate) and where is the list mentioned about the same on income tax website/ document.
It will be great if you can solve my above mentioned queries )
July 16, 2012 at 10:57 pm
Dear sir,
I have one query, I sold my shop in 2010 and gained profit of 10 lakh so I deposited it in capital gain account scheme to buy a new flat. But I wasn’t able to buy new shop and wanted to close capital gain account, want to know how much tax I need to pay( 20 percent I.e 2 lakh )or any penalty also added with it?
Plz respond at earliest.
July 18, 2012 at 4:22 am
Hello Sir,
we were staying in mumbai since 1978 on paghadi basis house. in year 2000 builder constructed new building over that land. we got new house. we only paid 200000 for extra land. on agreement and we paid only 200000 only for that house. actul value of that home in that time 2500000. now we are planing for saleing that flat. market value of that Flat is 600000.
my concern is on how to calcuate capital gain in such case.
we are planing for starting business with that money. Can we deposit that money in Fixed Deposite and take loan against Fixed Deposite.
and by business expense.
By this way can we save Capital gain tax? Please guide.
July 24, 2012 at 11:02 pm
from capital gain of selling flat/house, whether i can buy plot
July 24, 2012 at 11:21 pm
I want to know if I am having 20 lakh( for which tax was 5 lakh) capital gain and I deposited it in capital gain account. After 2 years I am nt able to buy property so decided to pay tax, what will be the tax which I need to pay now.
As to remove my money I need approval for AO…
Will appreciate which you can tell me whether any penalty will be attached to the same.
July 25, 2012 at 2:20 pm
DEAR SIR,
MY FATHER & I HAVE A CAPITAL GAIN LAST NOVEMBER 2011 THROUGH SELL OF THE LAND ON MY LATE MOTHER’S NAME.
AMOUNT GAINED WAS 18L IN TWO DRAFTS ONE IS ON MY NAME & OTHER IS ON MY FATHER’S NAME .
TODAY WE WANT TO FILE THE IT RETURN. WE HAD DEPOSITED THE AMOUNT IN FD OF NATIONALISED BANKS. 3L HAD BEEN USED FOR BUYING THE CAR . PLEASE SUGGEST WHAT WE CAN DO THE BEST POSSIBLE AT THIS SITUATION.
July 27, 2012 at 12:13 pm
have one query, I sold my shop in 2010 and gained profit of 10 lakh so I deposited it in capital gain account scheme to buy a new flat. But I wasn’t able to buy new shop and wanted to close capital gain account, want to know how much tax I need to pay( 20 percent I.e 2 lakh )or any penalty also added with it?
Plz respond at earliest.
July 29, 2012 at 8:16 pm
Hello Pankaj Kuamr Singh,
I would suggest you to consult with your bank or CA to know more details.
Thanks,
Krishna
July 29, 2012 at 4:22 pm
hey,
i have a query regarding capital gain. my father bought a land in 9.5 lakh . and we sold it in 29 lakhs and bought land with that money within a month .both were agricultur land . my father is a businessman . i dun know wther this land is capital asset or not. are we liable to pay any tax. or if we have to pay, then how much. how to avoid tax. is that 20 lakh gain from the previous land comes under capital gain.
thank you
July 29, 2012 at 8:14 pm
Hello anirudh ,
If it is not capital asset, there is no tax liability.
Thanks,
Krishna
July 30, 2012 at 3:10 am
anirudh- theirs no problem in ur case coz you had purchased new land before the returns but the property you sold have to be long term- meaning hold the property for more than 3 years, if not you asset will be consider as shorttem for which you are liable to pay 40 per tax.
The land is called asset if it is within 8 km area within municipality or population more than 10k and you should have carried agricutural activities for atleast 2 years after your ownership. To prove land is a agricultural land u need to get certificate from tahsildar. I will suggest you to check the above citieria whether you land is agricultural land.
Hope I am able to ans your query. Krishnas looks busy as nt able to ans all question in proper way…
August 2, 2012 at 2:54 pm
I had purchased an individual house in patnership 2009 december. The final sale agreement will be dated September 2012. This falls under short term capital gains. The registered value in 2009 was 24 lakhs. I had paid my earnings 21 lakhs towards the purchase. (the partner had paid 4 lakhs)
Now in 2012 the registration value is 48 lakhs. I’ll get 24 lakhs and the partner too.
Now the question is I have hardly gained anything! 3 lakhs difference. Whereas the other partner who has no PAN card will get 24 lakhs. Who should pay the capital gains? How does it work? Please help me.
August 2, 2012 at 2:57 pm
Who shall pay the tax??
I had purchased an individual house in patnership 2009 december. The final sale agreement will be dated September 2012. This falls under short term capital gains. The registered value in 2009 was 24 lakhs. I had paid my earnings 21 lakhs towards the purchase. (the partner had paid 4 lakhs)
Now in 2012 the registration value is 48 lakhs. I’ll get 24 lakhs and the partner too.
Now the question is I have hardly gained anything! 3 lakhs difference. Whereas the other partner who has no PAN card will get 24 lakhs. Who should pay the capital gains? How does it work? Please help me at the earliest.
August 12, 2012 at 12:10 am
Hello,
My fathers had purchased a land in my name in 1989. I have sold this land in 2012. I already have two residential property in my name in the city where I had sold the land. But still haven’t got possession or registered the other two properties. I am interested in buying a new residential flat in another city and also investing in NHAI/REC Bonds to save the remaining.
Please advise under what section (54F etc) or how can I save on LTCG. Would it help me saving LTCG by buying this third new property and also investing the remaining in bonds. ?
September 3, 2012 at 8:24 pm
Hi i want know if i bought land in 2009 and sell it in 2012 and immediately bought another land using the money gained from previous one, do i have to give short term capital gain tax in this scenario.
September 9, 2012 at 12:56 am
I HAVE ONE PVT LTD COMPANY I WANT TO SELL THE COMPANY AND MY INDIVIDUAL PROPERTY ALSO . IST CASE I TRANSFER MY SHARES TO X. THEN I WILL SELL THE ASSET IS A SHORT TERM BASIS.
WHAT IS THE TAX TO BE PAID. WHAT ARE THE STEPS TO FOLLOW THE CAPITAL GAIN TAX TO BE AVOIDED. PLEASE POST ME WHAT ARE THE METHODS TO AVOID CAPITAL GAIN TAX.
THANK YOU
H.SARAVANAN
September 21, 2012 at 11:44 am
I have sold a residentioal plot in the last August, 2012. The sale proceeds attract LT Capital Gain Tax. Can I get LTCG Examption by investing the proceeds into land purchase? if yes, what type of land should i purchase?
September 27, 2012 at 12:21 pm
Dear sir
my friend sold his agricultur land as on dated 21/10/2008 for rs. 62,00,000/-This market value. But the circle rate which is mention on the is rs. 6,83,333. The received amount of rs. 62,00,000/- deposited the saving bank a/c in two name. rs. 31,00,000/- in father’s a/c and rs. 32,00,000/- in son’s a/c. on the banama copy the Registrar writen the land is agriculture. When the land was sold is not a capital assets. but now from the date 1-4-2012 the municpalty take over there. pls guide me that we are safe or under capital gain will be rised.
September 28, 2012 at 5:40 pm
Dear sir
my friend sold his agricultur land as on dated 21/10/2008 for rs. 62,00,000/-This market value. But the circle rate which is mention on the banama is rs. 6,83,333. The received amount of rs. 62,00,000/- deposited the saving bank a/c in two name. rs. 31,00,000/- in father’s a/c and rs. 32,00,000/- in son’s a/c. on the banama copy the Registrar writen the land is agriculture. When the land was sold is not a capital assets. but now from the date 1-4-2012 the municpalty take over there. pls guide me that we are safe or under capital gain will be rised. The son is to farming with thee father. Is the tax laibility on the son. The Income tax officer collect the transaction from the bank and send a notice U/s 114B to114D of the income tax rules1962 read with section 139A(5) of income tax act 1961.
October 8, 2012 at 3:20 pm
If I sell n.a. land after holding it for more than three years then can I buy another n.a land from the full sale proceeds to save capital gains tax or I must buy a house/ flat or construct a house withing two years of selling the land. Secondly can I club sale proceeds of two or three properties to buy one flat or house.
October 16, 2012 at 1:57 pm
If I sold a property in April 2012, then till how long can I keep the capital gain amount in my savings account (not in Capital gain account scheme). If i deposit that amount in capital gain account scheme, then till how long can that amount be dumped there?
November 2, 2012 at 9:14 pm
Hello Karunakar,
If you keep it in the savings account, you have to pay the tax when you are filing the tax returns. If you open the capital gains account scheme, three years you can keep there.
Thanks,
Krishna
October 16, 2012 at 7:53 pm
Kindly clarify the following for FY 2012-13.
1. Have sold LAND – A (residential land) and claimed 54F exemption on the purchase of a HOUSE – B (Residential NEW house) in the FY 2010-11 (both in the same year). At that time of purchase of HOUSE-B had ONE more house HOUSE – A (OLD HOUSE) only.
2. In the year 2012-13 sold LAND – B (residential land). Can I avail exemption against section 54F for this FY 2012-13, if I proceed and invest the entire sale consideration obtained in the sale of LAND-B, for constructing an apartment unit at the same place of demolishing HOUSE – A (OLD HOUSE). The apartment unit will be completed fully only during the period AUGUST 2013.
November 1, 2012 at 12:56 pm
Capital Gains Account Scheme is applicable for short time capital gains
November 1, 2012 at 2:01 pm
Is Capital Gains Account Scheme is applicable for short time capital gains?
Reply
November 2, 2012 at 9:01 pm
Hello Sunil,
It is only for the long term capital gains.
Thanks,
Krishna
November 2, 2012 at 9:17 pm
If you want to learn more about the capital gains, buy this book for in depth knowledge:
http://www.flipkart.com/save-tax-capital-gains-8170948649/p/itmdak52ywt3uafx?pid=9788170948643&affid=suthukrish
Thanks,
Krishna
November 22, 2012 at 5:08 pm
Hi,
We had a residential plot and sold it in July 2012 after holding it for more than 7 years – there was a capital gain of approximately 5 lakhs or so.
We have registered a flat that is under construction in Oct 2012 and which will be delivered in March 2014; the flat costs roughly 1 Cr. We have starting making payments towards this flat based on milestones. This will be our primary flat.
Question: Since I have invested in the flat right away (within the time period necessary for capital gains exemption), I assume I am not required to capital gains tax. Please confirm. Also, do I need to make the payment to this flat through a capital gains bank account or is it ok if I don’t.
Thanks in advance.
November 27, 2012 at 6:43 pm
Had bought a flat in March 1987 for 1.25 lacs.
Want to sell the same this year in DEC 2012 for 30 lacs.
How much would be the Capital Gain Tax.
Do have I to invest the entire amount I get out of Sale Or only the amount that is equivelent to profit gained?
March 10, 2013 at 1:31 pm
Your article is very informative and thank you for the education. I have recently sold my agriculture land 3.25 acres about 7.5 Kms away from a notified municipal corporation (Pimpri Chinchwad Mun Corpn) in Maharashtra. The land is situated in a village which has a population below 10,000 as per latest census. Will it attract Capital Gains Tax?
What if I park the proceeds in a capital gains account in a PSU bank and spend the proceeds in buying an agriculture land at lesser capital value than the previous land sale value? Will it attract Capital Gains Tax on the balance amount? Can I also buy bonds specified under sec 54B from the balance amount and claim exemption from Capital gains Tax?
March 11, 2013 at 6:10 am
Hello Niranjan
Capital Gains rules for the notified area would differ for each region. It is better you check your local govt. officers if it is under rural area. In that case there is no tax.
Otherwise as you said park the money in Capital Gain Savings Scheme, and buy another land within three years. If you buy less amount, then remaining amount you have to pay the tax.
Thanks,
Krishna
March 11, 2013 at 9:11 am
Thanks Krishnas for your reply. Just a small query on your answer. Assuming that the sale of the agriculture land would attract Capital Gains tax since it is in a village having population below 10000 but within 8 Kms from limits of the notified municipality, is it possible to split the capital gains proceeds deposited in an account by investment in partly specified bonds (Rs. 50 lakhs) and partly buying an agriculture land? Would this split qualify for exemption from Capital Gains Tax?
Warm Regards
Niranjan
March 11, 2013 at 11:55 am
Hello Niranjan,
Yes. You can do that.
Thanks,
Krishna
March 11, 2013 at 11:57 am
Thank you so much Krishna.
With warm Regards,
Niranjan
March 11, 2013 at 1:12 pm
Hello Niranjan,
Thank you for reading my blog!!
Thanks,
Krishna