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Monday, March 5, 2012

Are you efficiently saving capital gain tax on sold property?

In recent years property prices have soared like anything. In one of my previous posts I had discussed how one can invest in 54 EC capital gain bonds to save capital gain tax.
The law clearly states that one has to invest in 54 EC bonds within six month of the property sale.

Let us first understand what is the exact date for the property sell?
It is not the date on which you entered the agreement with the buyer or the date you got full payment for the property deal.
The sell date is the date on which either the title of the property changes (seller to buyer) or the handing-over of the possession of the property takes place, whichever falls first.

The law states that at the most one can invest Rs. 50 lakhs in 54 EC bonds per financial year.
Mr. Joshi had recently sold his property  in Pune for Rs. 2 crore and the cost of acquisition of the flat which he acquired in 2002 was just Rs. 60 lakh.
His indexed cost figured out as 1.1 crore and thus a long term capital gain of Rs. 90 lakh was reckoned.
Mr. Joshi was worried as he knew that he can at the most invest Rs. 50 lakh in 54 EC bonds and he shall still need to pay the tax on remaining Rs. 40 lakhs (capital gain).

How Mr. Joshi could have saved the tax?
Mr. Joshi could have timed the sale of the property.
He should have sold the property in November 2011 or December 2011 so that he can invest Rs. 50,00,000 in 54 EC bonds in the financial year 2011-12 and remaining Rs. 40,00,000 capital gain in April 12 (FY 2012-13).

Is it valid?
Yes, it is hundred percent valid. Law restricts payment in excess of Rs. 50 lakh in a financial year but from April 1st, new financial year begins so one can invest further up to Rs. 50 lakh in 54 EC bonds.

What should be kept in mind?
      (1)    Investment should be done within 6 months of the property sell.
      (2)    Sell date is the date on which transfer of the title takes place or possession is handed over (whichever is earlier).


Houses for Sale in Toronto said...

This post is awesome. I've been reading tons of crap posts from other blogs, but shows you have a more educated reader base.

Toronto Real Estate Sales Agent said...

I will certainly do it. That will be one of my next steps. However, I have already made a great suggestion.

ava said...

@ TRESA: Thanks for the appreciation.

Condo Price Singapore said...

I have seen many post like this in my life but this is the best among all of them.I want more post from here like it.Thanks a lot for sharing this post with us

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