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I bought a plot of land in June 2001 and sold it in April 2005. I understand that the profit I made out of it is subject to long-term capital gain.
1. If I buy another property valued more than the profit I made, can I avoid paying tax?
2. Till I finalise the other property that I wish to buy and actually register it in my name, where should I keep the profits?
- Naveen Sadashiviah
You are right. The amount of tax exemption would be to the extent that you invest in the new residential property.
You would need to do this to avoid paying long-term capital gain tax.
Your reinvestment can take place in the following way:
1. Purchase residential property
This must be done either a year before the date of transfer of the old residential property, or within two years after the date of transfer of the old residential property.
2. Construct a new residential property
This must be done within three years from the date of transfer of the old residential property.
However, if the amount has not been reinvested in the new property before the date of filing of your income tax return (in the case of individuals it is July 31), then the unutilised portion of the capital gains should be deposited in "Capital Gains Deposit Account Scheme". This account can be opened with any nationalised bank.
The proof of such a deposit should be attached with the Income Tax return.
Now, you cannot use this money for anything at all. You can utilise the funds from this account only towards either purchase / construction of a new residential property.
I had shares of Vijaya Bank allotted to me in an Initial Public Offering a few years ago. The shares were in the name of my mother (first name) and myself (second name).
My mother transferred these shares on to my name (first and sole name) in February 2004. I sold them in March 2004.
Will this be considered as a short-term capital gain? Will the tax department look at it as purchased in February 2004 and sold in March 2004?
Or, will it be considered a long-term capital gain? Will they consider it purchased during the IPO and sold later.
- Dimple Pujara
You could execute a gift deed for the transfer of such shares to your individual name.
In technical terms, gift of property is not considered as transfer liable to capital gains tax. In other words, if you execute a gift deed, saying your mother gifted it to you, you will not be liable for any capital gain tax.
Moreover, Section 49(1) of the Income Tax Act 1961, specifies that the cost incurred by the previous owner in such a case would be that of the new owner.
Also, the period of holding by the previous owner would be considered in determining whether the asset is a long or short-term one.
Hence, in your case, the shares held/transferred to your name would be a long-term asset.
I invested in some mutual funds of Franklin Templeton in November 2004. Three months later, I sold them for a profit or around Rs 30,000. As a result, I have to pay short-term capital gains tax.
The asset management company deducted 33.3% as Tax Deducted at Source.
Currently I am abroad on a Non-Resident Indian status and have no other taxable income in India.
So should the short-term capital gain on mutual funds be 10% or 33.3%?
- S Gidwani
As the investment and sale transactions took place after October 1, 2004 when the Securities Transaction Tax was made applicable, short-term gain made on eligible equity oriented mutual fund investments would be taxed at the rate of 10% (plus surcharge plus education cess).
This exemption is available to NRIs as well.
However, as your income does not exceed the exempted limit, there would be no tax payable and hence you could claim the refund by filing an Income Tax return.
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