Do 3 years for long-term capital gains tax start from purchase of plot or completion of house construction?

Question

I purchased a vacant plot of land on 1 May 2004, and the house construction got complete on 1 June 2006. When will I be eligible to sell the house + plot under long-term capital gains - is it 1 May 2007 (i.e., three years after I purchased the plot), or 1 June 2009 (i.e., three years after the house construction got complete)?

Answer 1

You can sell the plot on 2.5.2007 and the gains will become Long Term Capital Gains.

But, the cost of the site can only be indexed and the Long Term capital gains will apply for the cost of the site only. The cost of construction will be treated as improvements. Example is given below.

For Plot+House sold on 2-5-2007: for Rs.30,00,000/-

* 1-5-2004 Cost of purchase of site ---Rs.10,00,000
* Cost of construction of house.(Say) Rs. 8,00,000
* Your cost of Site+House (10+8).......Rs. 18,00,000
* 2-5-2007 Sold House say for ------- Rs. 30,00,000
* Your actual gain (30-18) -------------- Rs. 12,00,000

* Tax calculations:
* Inflation index for :2004-05= 480
* Inflation index for 2007-08= 535 (Estimate)
* Indexation cost of Site: 10,00,000 x 535 / 480= Rs. 11,14,583
* Your cost as per inflation index. (11,14,583+8 Lakhs)=19,14,583
(Cost of site with inflation index+house 8 lakhs)
* Now your actual gain= 30 lakhs-18,14,583=10,85,417
* Tax on it= @20% + 2% EC.= Rs.2,21,425

If you sell the house on 2-6-09, then you can claim inflation index on construction cost ( 8 lakhs also)..

Answer 2

Hi, The date of last investment in the property is the acquisition date.
It means U will pay long term capital gain taxes if sold after 1 June 2009.

HAPPY INVESTING

Answer 3

absolutely buy a new property but u will have to hold it for atleast 3 years otherwise capital gains exempted will be taxable in the year in which u will sell ur new house property. Hope it helps.. Gud luck!!

Answer 4

There is no question of long term capital gain unless you sell it.

Answer 5

Refer to statutory provisions of capital gains under Income tax Act on the link below:
http://www.allindiantaxes.com/incometaxch-4s54f.php
E. - Capital gains
54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house
(1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:
Provided that nothing contained in this sub-section shall apply where
(a) the assessee,
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head Income from house property.
Explanation.For the purposes of this section, net consideration, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head Income from house property, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head Capital gains relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.
(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head Capital gains relating to long-term capital assets of the previous year in which such new asset is transferred.
(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,

(i) the amount by which
(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1),
exceeds
(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,
shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and
(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid