Tax on selling a house

POSTED BY PK ON February 18, 2012 3:29 am COMMENTS (13)

Hi,
I own a house that was bought in 1990. Now I want to sell it and buy another house.
I get around 50% of the amount for my new house by selling the current one.
Other 50%, I will be going for house loan.

But now the question is, should I pay income tax when I sell my old house under capital appreciation? If so, for how much amount is the tax calculated? Will it be on the entire price?
or will it be on the SellingPrice minus purchasedprice? Is there a way to get out of this tax?
It falls into 30% category and 1/3rd of the money will be a loss for me.

Please help me:

Regards,
PK

13 replies on this article “Tax on selling a house”

  1. ashalanshu says:

    Dear Ashok, for 2009 purchased house, interest related benefit ‘ll not be reversed but if you have claimed any principal repayment benefit under section 80C, it ‘ll be reversed as you are not completing 5Y of holding period.

    No you can not claim tax liability on 2009 LTCG adjusted for repaying the 2010 home loan.

    thanks

    Ashal

  2. ashalanshu says:

    Dear Ashok, what was your actual possession date in 2009?

    Thanks

    Ashal

    1. Ashok Patil says:

      I got the possession in Dec-2009 for 1st house.
      Possession for 2nd house is in Aug-2010.

  3. Ashok Patil says:

    Dear Manish and Anshal,
    I have a query related to this topic.
    I have a house in 2008 (possession in 2009) in 30lacs
    Now I plan to sell it in 60 lacs in Pune.
    My worries are :
    1 – As I am selling before 5 years (if I consider 2009), my tax rebate will be reversed as my income. Can you clarify, which date is considere – registered or possession.
    2 – Will I have to pay income tax on the appreciated amount, if I use the amount to foreclose my other house loan which was taken in 2010 in Kalyan.

    What is the % tax to be paid if I use the amount for my personal use.

    please comment and suggest.

    Thanks
    Ashok

    1. Ashok Patil says:

      Also I would like to add that I also have outstanding loan amount to be paid on the house which I am going to sell.

  4. Sethu says:

    @PK – Apologize for occupiying your thread and i hope you dont mind 🙂

    @ Ashal

    The way in which you explain things in a very clear and simple manner makes me to feel that i m listening to a guy “who-is-very-clear-on-what-he-speaks”. After Reading Jagoinvestor and its forum It gives me enough confidence and trust on various finacial disciplines.

    Its not that i m going to follow you/manish blindly.The Catch is you tell the complex things in a simple plain way which drives most of the ignorant investors to get acquinted with the topics discussed and do more research on it.

    @Manish/Ashal & many other active forum memebers – Please keep up the good work and wish you all the best in whatever you do.

    Thanks
    Sethu

    1. Thanks Sethu .. Good to hear you learned many things .. believe me if you start answering others queries, that the best way to learn ! .. try answering more and more and give your 10 mins back to community each day 🙂

      Manish

    2. Dear Sethu, I’m happy that I’m able to help you. Regarding blind thing – I never expect to act blinly. Cross check all the info provided to you either in this forum or from else where & use your own brain to decide.

      As rightly pointed out by dear Manish, make it a habit to read forum daily & then try to answer few queries. This ‘ll do wonders to your finance related understanding.

      Please feel free to ask, whenever you need any help from me or any one else here in this forum for your queries.

      One interesting thing regarding this forum – Manish, Ramesh & me, all 3 of us (the top 3 contributors in terms of answers given) are from non finance back ground. Dear Manish is an MCA, Dear Ramesh is a Doctor & Myself a Chem. Engr. So you can see yourself that being from non finance back ground is no hindrance to gain knowledge on all these matters.

      Thanks

      Ashal

  5. Dear PK, if you opt not to purchase the new house & want to keep the LTCG amount in bank FD, the tax liability is there @ 20.6% for those 11.53L Rs.

    I.e. you w’d have to pay LTCG Tax of 237518. So post tax, you w’d have around 9.18L Rs. in your hand & now you are free to invest this amount in bank FDs or wherever you want to.

    Thanks

    Ashal

  6. Dear PK, Here is your long term capital gain calculation.

    Year of purchase = 1990-91 (FY)
    Cost Inflation Index of 1990-91 = 182
    Year of Renovation/Improvement = 2001-02
    CII of 2001-02 = 426
    CII of Sell year i.e. 2011-2012 = 785
    Indexed purchase price = 300000*785/182 = 1294000
    Indexed Improvement price = 300000*785/426 = 553000
    Hence Indexed Long Term capital gains = 3000000 – (1294000+553000) = 1153000

    Now as you are purchasing a new residential house for you, this LTCG can be adjusted against the purchase of new house under section 54 of Income Tax Act, 1961.

    Please do remember, as you are purchasing an under construction house, the possession should be there with you within 2Y from the sell date of old house.

    for example if you had sold your old house on 15th Feb 2012, then on or before 14th Feb 2014, the new house’s possession should be there.

    Thanks

    Ashal

  7. Dear PK, can you post the purchase price & date of your old house & possible price of new house for the pin point calculation?

    thanks

    Ashal

    1. PK says:

      Thanks Manish.

      Ashal,

      The house was built by us in 1990, and it actually costed us around 3 lakhs. Later in 2001, we spent another 2-3 lakhs for renovation. Now we are selling the house for 30 lakhs.

      Manish/Ashal,

      There could also be a possible gap between selling the old house and buying a new one. This is because we are still searching for the new house. But we have already a person who is willing buy our old house. Meanwhile we could be renting a house for some time. This is because the flat will be under construction and the actual registration could happen only after 12 to 15 months. So could you please help me if the tax is still exempted?

      Also, does the same hold good if we sell any site for buying a house? I meant we needn’t pay any tax on capital appreciation of the site?

      Also, in case if we don’t buy a house and want to keep it in FD, how is the tax calculated on 30 lakhs? please help me.

      PK

  8. PK

    IN this case your gains from house will come under “Long term capital gains” . and as per income tax laws if you are going to use those proceeds into buying a new house , then you dont need to pay any tax, so if you are using the money in buying another house, then you dont need to pay any tax at all .

    Manish

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