TAX SAVING TIPS FOR LONG TERM CAPITAL GAIN

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Query 1]

I am 72 years retired Government employee. I along with my late brother inherited a house from my mother after my mother’s death. We sold the house on 20th June, 2013 and shared equal amount of Rs. 70 Lacs each with my brother’s wife. I already own a house at Nagpur. I want to buy a second house. Is it possible? What is the maximum time permissible to buy the house with the amount received to avoid LTCG? Where can I invest the amount incase if any balance amount is left even on purchase of new house? Can I buy a plot? Can I gift my old house to my wife /son without taxation? Your valuable inputs will help me. [Ajai Nigam- keystart@gmail.com]

Opinion:

  1. Tax on Long Term Capital Gain (LTCG) on sale of inherited residential house property can be saved (U/s 54 of the Income Tax Act-1961) if the LTCG is invested within a prescribed time for purchase/ construction of a house property. The exemption u/s 54 would be available even if you already own a residential house property (i.e., exemption would be admissible even if you are purchasing a second house property).
  2. Time limit to Purchase the Property:
    Exemption u/s 54 is available if the taxpayer invests the amount of LTCG for purchase/construction of a house property. The time period within which investment should be done is as under:
    a] For Purchase: Within One year before or two years after the date of transfer; or
    b] For construction: Within a period of three years from the date of transfer.
  3. Scheme of Deposits:
    Although under section 54, the taxpayer is allowed 2 years to purchase and 3 years for construction of the house property, the capital gain tax on such transfer is taxable in the previous year in which transfer took place. The return of income of that previous year has to be filed before the specified date i.e., due date. Hence, the tax payer has to take a decision for purchase/ construction of the house property before the date of furnishing of the return otherwise the capital gain would be taxable.
    To avoid the above situation, the Income Tax Act has specified an alternative in the form of a Deposit under the Capital Gain Deposit Accounts Scheme-1988 (CGDAS). The amount of LTCG which is not utilized by the taxpayer for purchase or constructions of the new house before the due date of furnishing the return of income, has to be deposited by him/her under the Capital Gain Accounts Scheme, before the DUE DATE of furnishing the return. After Deposits, the amount already utilized by the assessee for purchase/ constructions of the new house, along with the amount so deposited, shall be eligible for exemption under section 54 in the year in which LTCG has arisen. Later on, whenever you purchase/constructs the house property within a specified time slot, you can make the payment from the CGDAS.
  4. First of all, you need to compute the amount of LTCG. You are not required to invest entire sale consideration of Rs. 70 Lacs. For claiming tax exemption, you would be required to invest the amount of LTCG only. You are free to use the amount over and above LTCG as per your wish without any restrictions. For saving tax, you further have an option to invest the amount of LTCG in NHAI/REC bonds before 19.12.2013 (i.e., within a period of 6 months from the date of sale). If your investment or anticipated investment in the new house property is less than LTCG, you can think of investing the balance amount in NHAI/REC bonds to save tax.
  5. The cost of the Land/plot would form the part of the investment in the new house property.
  6. The gift of old house property to your son or wife will not attract any tax directly. However, if any income arises to your wife from the gifted property, it would be subject to the clubbing provision.

Query 2]

I had bought a flat 1n 1986 for Rupees Two Lacs and there is an offer of Rs. 35 Lacs now. The guidance value is about Rs. 26 Lacs which will also be the value for the purpose of registration. My questions are:

  1. How about the balance Rs. 9 Lacs for accounting?
  2. What about the long term capital gain liability?
  3. From where can I get the details for investing in NH -way or RBI bonds, like getting the required forms and the limits for investments etc? Please let me know the details also of other legal ways of tax saving avenues. [n_premkumar@hotmail.com]

Opinion:

  1. Long Term Capital Gain (LTCG) is required to be computed by taking the HIGHER of the Sale price or Stamp Duty Valuation. If you execute the sale deed a lesser price (i.e., Rs. 26 Lacs) as against the actual sale price (i.e., Rs. 35 Lacs), an unaccounted money would be generated which cannot be placed on record. Considering the prevailing moderate tax rate as well as other various tax saving options available , tax payers are advised to execute the sale deed at an actual sale price only.
  2. The LTCG is taxable u/s 112 at a special rate of 20% even though your other taxable income may be in the tax bracket of 10% or 30%. However, if your other income is below the basic exemption limit, the unutilized basic exemption limit (i.e., the basic exemption limit less other taxable income) can be reduced from the amount of LTCG and the balance LTCG shall be taxable @ 20%.
  3. Tax Saving Tips:
    The LTCG arising on transfer of house property can be saved
    a] U/s 54 by utilizing the amount of LTCG for purchase / construction of a residential house property. You can refer Query No. 1 above for details about exemption u/s 54.
    b] U/s 54EC by investing the amount of LTCG in the capital gain tax saving bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer.
  4. The application form for subscription is available at recindia.nic.in or at www.nhai.org .

Query 3]

After marriage, I want to get the middle name and surname changed in the PAN card as the same is required for account opening and various other purposes. Please advice me the procedure? How can I get it done? [ *******val@gmail.com]

Opinion:

You can get the corrected PAN card with changed middle name & surname by making an application in “Request for New PAN Card or/and Changes or Correction in PAN data”. You have to attach the documents in support of your submission. The form can be downloaded from the websites of UTI Technology Services Ltd (UTITSL), National Securities Depository Ltd (NSDL), or the I-T department [www.utitsl.co.in, www.tin-nsdl.com or www.incometaxindia.gov.in]. You can tick the Name column on the left margin of the form. You have to attach color stamp-sized photographs on the form.  The form can be submitted at PAN application centers of UTITSL and NSDL, the addresses of which are available at the above mentioned website.

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