LTCG Deduction

Long Term Capital Gains on Residential Property

Transfer of a residential house and investment in a new residential house

LTCG Deduction: If you are having LTCG from transfer of a residential house and want to make investment to purchase or construct a new residential house, the amount invested in the new residential house is allowed as a deduction from the LTCG.

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How to claim the LTCG Deductions?

Conditions to claim the deduction,

  • The new residential house can be constructed within 3 years from the date of transfer, or

  • can be purchased one year before the date of transfer, or

  • can be purchased two years after the date of transfer.

Procedure to claim this deduction,

  • after taking into consideration for the amount that you already invested for the construction or purchase of the new residential house up to the due date of filing of return of income,

  • should deposit the remaining amount which you intend to use for purchasing or constructing the new residential house in a Capital Gains Deposit Account on or before the due date for filing of the return, and have to produce the following documents if asked by your Assessing officer:

  • proof of investment in construction or purchase, and

  • proof of making deposit into the capital gains deposit account, along with the return of income.

Time Limit to Utilise the Money deposited in Capital Gains Deposit Account

The amount which is deposited in the Capital Gains Deposit Account has to be utilised by you,

  • for the purpose of purchase of the new residential house within two years from the date of transfer, or,

  • for the purpose of construction of the new residential house within three years from the date of transfer.

What happens if I don't utilise the Money with in the specified period?

If you fail to utilise this amount either wholly or partly for the above purposes within the period the amount remaining unutilised would be taxed as Capital Gains in the year in which the above mentioned period of three years is over.

Example - LTCG Deduction

Let us continue with an example.

Let's assume, you sold a residential house on 10.03.2012, for Rs 40,00,000/-. And the house was purchased by you on 01.08.2008 for Rs 5,00,000/- and you spent Rs1,00,000/-on improvement during May 2010.

Then the residential house becomes a long term capital asset as the period of holding would be more than 36 months (01.08.2008 to 10.03.2012). And its transfer gives rise to long term capital gains.

Let's quickly calculate the capital gain using the online LTCG Calculator »

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In this case of LTCG you have options to,

  • purchase house either one year prior or two years after 10.03.2012, or

  • construct a house within 3 years from the date of transfer 10.03.2012.

Let's Consider 31st July 2012 as the due date for filing your Income tax return, and that you have invested in construction of a new house Rs6,00,000 up to that date.

Now to claim deduction for entire LTCG, you should deposit Rs 26,15,194/- (Rs32,15,194 - 6,00,000) in a Capital Gains Deposit Account on or before 31st July, 2012.

If, out of this amount, you utilise only Rs 20,00,000/- for constructing the new house by 10.3.2015, the remaining amount Rs 6,15,194/- (26,15,194 - 20,00,000) would be taxed as Capital Gains for the assessment year 2016-17.

Can I Invest in More than one Flat?

Yes. You can invest in more than one Unit as per Section 54 of the Income Tax Act, India.

Get answers for your LTCG Tax Questions »

Related Topics

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