Sale of Immovable Property

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The income arising on sale of immovable property is taxable under the head ‘Income from Capital Gains’.

* Plus Surcharge if applicable, and "Education Cess" (2%) tax and "Secondary and Higher Education Cess (SHEC)” (2%) of the tax amount.

Computation of Capital Gains:

Capital Gains is to be calculated in the following manner:

#Indexation benefit will be allowed if the asset held is Long Term in nature.

Reinvestment Options for Long Term Capital Gains:

Assessees are entitled to claim exemption from the capital gain tax if they reinvest long-term capital gains / net sale consideration earned on sale of long-term capital assets being residential house into the following assets:

A. Section 54 – Investment in Residential House

Note:

Purchase of Residential house - Within 1 year before or 2 years after

Construction of Residential house - Within 3 years after

B. Section 54EC – Investment in Specified Bonds

This is a tax-saving option that is utilized by most of our clients. Investment upto INR 50 lakhs can be made in Tax Saving Bonds issued by:

National Highways Authority of India (NHAI).
Rural Electrification Corporation Ltd. (RECL).
Bonds as may be notified by the Central Government

Investment is to be made within 6 months from the date of transfer of asset.

Bonds are to be held for a period of 5 years. (Earlier, such lock-in period was only 3 years. Considering the longer lock-in period, it is essential to determine your individual needs before investing in such bonds)

Points to Remember:

Options available for reinvestment of Capital Gains are applicable only for Long Term Capital Gains. No reinvestment options are available for Short Term Capital Gains.
The Period of Holding of an Immovable Property may be computed from the Date of Allotment, Date of Possession or Date of Registration of Agreement. There are judicial precedents in support of all 3 alternatives. However, it is important to evaluate the facts and circumstances of each case before determining the correct Period of Holding as per the provisions of the law.