Under the Income Tax Act, 1961, gains, if any, arising from sales of the land would be taxable.
STCG - Short Term Capital Gains - Property held for less than 36 months
The STCG woule be tax rates as applicable to other normal income for the concerned Financial Year.
LTCG - Long Term Capital Gains - Property held for more than 36 months
The exemption under section 54/54F of the Act could be availed by individual only in respect of LGCG.
Incase of inheritance, the period of holding is counted from the date of purchase of the property by the previous owner (Father/Mother/Husband/etc).
LTCG = Net Sales Proceeds - Indexed Cost of Acquisition
LTCG shall be taxed at the rate of 20.6% (including education cess).
Cost of Acquisition = Purchase Cost + Property improvement Costs(Alterations) + Stamp Duty + Registraion Fees + Brokerage + Legal Expensess + etc.
On the other hand, payment of interest on the bank loan availed for purchase of property being an ongoing recurring expensess. it will not be considered as part of purchase cost.
Claiming Exemption:
Provisions under the Income Tax Act 1961 for claming exemption from tax in respect of LTCGs from Sale of land is seprate from the sale of residential property house. (i.e.,) Calcuation Methodology
Though in both the cases exemption from tax in respect of LTCG can be claimed by investing the proceeds or capital gains, as the case may be, in a new residential house.
LTCGs from Sale of Land:
Where the cost of new house exceeds the net sale proceeds, entire LTCG should be exempt from tax.
However, where the cost of new house is lower than the net sale proceeds, LTCG is exempt from tax in proportion of cost of new house to the net sale proceeds.
However, the exemption under Section 54F of the Act Could be availed subject to fulfilment of prescribed conditions.
(i) You should not own more than one house (other than new house), on date of sale.
(ii) Further you should not purchase or constuct any residential house (other than the new house) within a period 1 Year to 3 Years, respectively after the date of sale.
(iii) Alternatively, you may consider claiming exemption from tax under Section 54EC of the Act by investing the sale proceeds in specified bonds issued by National Highways Authorities of India or Rural Electricification Corporation Ltd within Six months from the Sale date upto cap of Rs.50Lakh duing any Financial Year.
LTCGs from Sale of Residential Property:
Under Section 54 of the Act, you could Claim LTCGs arising from transfer of residential flat as exempt from tax by investing in new residential house.
The exemption is caped to lower of the amount invested in the new house or Capital gains arising from the transfer fo the old house.
Alternatively you could invest the sale proceeds during the Financial Year in specified Bonds and claimed deduction under Section 54EC of the Act.
