This further relates to your answer to Mr GSR Murthy’s question in the “Tax Inquiry” column in BL of January 3rd. It was stated that the apartment in question was purchased on November 16, 2010 for £ 24.5 and sold on March 11 for £ 38 lakh. They had replied that the profit sold would count as LTCG. Please explain how the indexing should apply in this case and how the LTCG is to be calculated.
In accordance with the provisions of the IT Act, any capital asset that a taxpayer holds as land or building or both for a period of more than 24 months is considered long-term capital assets and any gain / loss from the transfer of that asset is long-term capital gain / loss (LTCG / LTCL). In the present case, the LTCG is to be calculated as follows:
The Cost Inflation Index (CII) for each fiscal year is reported by the central government and is available on the IT department’s official website at tinyurl.com/taxCII. The property was purchased in fiscal 2010/11, for which the CII was 167, and sold in fiscal 2019-, for which the CII was 289.
I bought a piece of land a year ago and will be selling it shortly. I can make a capital gain of £ 20. Can I buy an apartment for relief? I currently own an apartment.
Srinivasa M Reddy
I note that the capital asset under consideration is land. You bought the same thing a year ago. Please note that the IT Act provides an exemption from long-term capital gains tax (LTCG) when selling land by investing in a residential building under Section 54F of the IT Act. However, under the terms of the law, the land is considered long-term capital assets (LTCA) if held for at least 24 months. In this case, the land, expected to be held for less than 24 months, is considered a short-term capital asset (STCA). There is no exemption from taxation of profits resulting from the transfer of this STCA.
Assuming that you are selling the same after holding it for 24 months, you can request an exemption from the total amount of LTCG by using the net sales consideration (NSC – sales price minus any expenses that are fully and necessarily incurred on such a sale) invest. . If a lower amount is invested, a pro-rata exemption is permitted (ie in the ratio of the LTCG and NSC invested). The following conditions also deserve attention and must be met in order to apply for such an exemption:
– Buying a home should be made a year before or two years after the date of sale. In the case of construction, this should be done within three years from the date of sale.
– You shouldn’t keep more than a residential home as an investment in new assets.
If this condition is breached in the following years, the previously permitted exemption is withdrawn and the capital gain is taxed in the year in which the breach took place. Since you only own one residential property in your name, you can apply for an exemption under Section 54F, provided the specified conditions are met