‘Capital gains tax is a part of income tax’

1) Is there capital gains tax applicable if I buy real estate and sell the same real estate within three years from the date of buying?

2) Is there any income tax applicable when I sell any real estate within three years of buying?

?Manivannan Nagappan

Capital gains tax is a part of income tax. In other words, when you earn income (interest, salary, rent, etc), income tax is applicable, whereas if you sell a capital asset (property, bonds, gold, etc), capital gains tax is payable.

If you sell real estate within three years of buying it, short-term capital gains tax is payable. The same will be 33.99% on the profit.

I am given to understand that if one wants to avoid taxes on the sale of a immovable property, the proceeds can be invested in capital gains bond for three years before repatriating the money. I have two questions on this:

1) Is there a limit on how much of the sale proceeds can be invested? I heard its Rs 50 lakh, is this true?

2) One of the issuers of these bonds is the National Highway Authority of India (NHAI). Are there any other institutions?

?Prabhat

Yes, the limit is Rs 50 lakh. Note that this limit is applicable per financial year (April-March). So if you sell the property between December of any year but before March, since the six month period overlaps two financial years, potentially you can invest Rs 100 lakh (Rs 1 crore).

The other institution that offers these bonds is Rural Electrification Corp. The government decides who should be allowed to issue these bonds, considering the capital-raising requirement of a particular organisation. Earlier, five companies were being allowed to offer these bonds but now there are only the abovementioned two.

While computing profit from sale of shares, are STT, brokerage and other charges deductible from the sale price?

?Zalkikar

For an investor, brokerage is certainly deductible but STT is not. For a trader in shares, FA08 has also amended Section 36 to allow deduction of STT and CTT only when the income from such transactions is included under the head ‘profits and gains of business or profession’.

Consequently, Section 88E, which offered a tax rebate (deduction from tax liability), where the total income of an assessee included business profits arising from securities transactions, stands discontinued.

I have purchased a residential plot in Bangalore. Its registration was done three years ago. However, I was out of the country and it was only after a period of two years that I realised the plot was taken away by the developer and used to build a party hall. When I objected he gave me an alternate plot. Now the re-registration was done for the new plot.

However, there was no financial transaction, as I did not pay him any amount. Now I wish to sell my plot. For capital gains determination, which is the date of registration that will be applicable? If I take the first one then I will earn long-term capital gains, but the second one would mean short-term gains. Can I put the case in front of an IT officer and demand the benefit of long-term gains instead of short term, as this happened due to no fault of mine?

?Dr. Kulkarni

The registration is asset specific. You own the plot that is to be sold since the registration is thereof in your name. Hence, the term of three years is calculated from the date of the second registration. Also note that the term ‘transfer’ also includes exchange. Therefore, even for the first transaction, even though no money changed hands, the exchange of one plot for another would entail capital gains or loss as the case may be. The market value of the second plot will be deemed to be the sale value of the first plot in order to calculate the capital gains.

My son is an NRI living in the US. He intends to buy some property in India. However, we were told that an NRI can buy a maximum of two properties. He already owns one property jointly with me. If the abovementioned law is true, then it would mean that this impending purchase would be the last property he can buy and he can no more participate in the Indian realty sector (he may later on want to sell this property to buy a bigger place to accommodate the entire family, etc). Could you throw some light on how to tackle this situation?

?Vidyashekhar

You have been misinformed. NRIs may buy and sell any number of properties in India. The only condition is that repatriation of sale proceeds of property is limited to only two properties in one’s lifetime. So, in your example, your son can indeed sell his second property and reinvest the proceeds to partly defray the cost of a new bigger property, etc.

If repatriation is desired, it would be advisable for your son to buy the second property in his single name (and not jointly with wife). Any further properties that they intend to buy should be in his wife’s name. This way husband and wife can buy, sell and repatriate funds representing four properties.

The authors may be contacted at

wonderlandconsultants@yahoo.com