Capital gains on transfer of property

Under the Income Tax Act, any gain or loss arising from the transfer of a property is subject to tax provisions under the head 'Capital Gains'. Any property, including a flat, building, apartment, site, farm house, commercial property etc, is subject to capital gains on its sale or transfer. It is not only the sale of a property that triggers capital gains. Even certain specified kinds of transfers are deemed as a sale and any gain thereon is subject to capital gains tax.

Transfer of property means conveyance of property from one person to another. The income arising on the transfer of a capital asset is subject to capital gains tax. The 'transfer' is deemed to have taken place on the date on which possession of the property is given. In case payment has been received but the transfer has not been effected it will not be treated as a sale transaction.

Long-Term or Short-Term Gain

Under the income tax laws, the capital assets may be of two types long-term capital assets or short-term capital assets.

In case a property has been held for more than 36 months, the capital gain arising on it is treated as a long-term capital gain. In case the property is transferred or sold after holding it for less than 36 months, the gain arising on it is treated as a short-term capital gain.The period of holding the capital asset determines its taxability whether it is a longterm capital asset or a short-term capital asset and accordingly whether one has incurred a long-term or short-term capital gain or loss.

Capital Gain

The amount of capital gain is arrived at by applying the Cost Inflation Index. The Index is published by the Income Tax Department. The present worth of a property is arrived at by applying the Cost inflation Index to the cost of the property as well as any improvements made to it.This is deducted from the sale amount received by the transferor to arrive at the capital gains.

A capital loss, whether short-term or long-term, can be carried forward and set-off for the next eight years. After eight years, it lapses and cannot be carried forward any more.

Tax Planning

Some tax planning saves tax under Section 54EC against a long-term capital gain. One canINVEST in a residential property or in capital gains bonds. It needs to be ensured that the conditions prescribed under this Section are strictly complied with, or else the amount claimed exempt is made subject to tax.

In order to defer the tax, one can open an account under the Capital Gains Account Scheme with a public sector bank and deposit the capital gain in it. The funds so deposited can be used to purchase a property within three years of making the deposit.

SOURCE: MAGICBRICKS.COM