06 August 2009
I own a residential house in Chennai, registered in Jan, 2005 and taken possession in Oct, 2005. House was built through a builder. I intend selling this house. There is long capital gains tax to be paid, if I don't invest in new property within one year. Incidentally, I have invested in another property in Chennai itself - registration done in Sep, 2008, but possession will be in Jan, 2010. If I sell the first house now (say, Oct, 2009), will it attract Capital Gains Tax ? The question is - whether the date of registration or date of possession of the apartment will be considered for capital gains tax ?
18 July 2024
In your situation, the key factor determining whether the sale of your residential house in Chennai will attract capital gains tax is the duration of ownership, not the possession date of the new property you purchased later. Here’s how the capital gains tax on the sale of your first house would be determined:
1. **Date of Acquisition:** - For the purpose of capital gains tax, the date of acquisition of your first house is considered to be the date of registration, which is January 2005 in your case.
2. **Duration of Ownership:** - Since you acquired the house in January 2005 and intend to sell it in October 2009, you have held the property for more than 3 years. Therefore, any gain arising from the sale of this property would qualify as Long-Term Capital Gains (LTCG).
3. **Capital Gains Tax Implication:** - LTCG on sale of a residential property is taxed at a flat rate of 20% after allowing for indexation benefit. Indexation adjusts the purchase price of the property for inflation, reducing the taxable capital gains. - The indexation benefit accounts for the rise in the cost of acquisition due to inflation over the holding period, thereby reducing the taxable LTCG.
4. **Investment in Another Property:** - To claim exemption under Section 54 of the Income Tax Act, you must purchase another residential property within either 1 year before or 2 years after the date of sale, or construct a residential property within 3 years from the date of sale. - In your case, you have already purchased another property in Chennai in September 2008, and possession is expected in January 2010. This new property can be considered for claiming exemption under Section 54, provided it meets the residential criteria and is completed within the stipulated timeframe.
5. **Conclusion:** - Selling your first house in October 2009 will attract Long-Term Capital Gains tax, calculated based on the indexed cost of acquisition and the selling price. The possession date of your new property purchased in 2008 does not affect the capital gains tax liability of your first house. - Ensure to meet all conditions under Section 54 if you intend to claim exemption by investing in the new property.
It’s advisable to consult with a tax advisor or chartered accountant to ensure compliance with all tax regulations and to optimize your tax implications based on your specific circumstances.
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