Property-related financial queries answered by R.P. Deshpande, Director, Institute of Home Finance

I inherited a 700 sq. yd house from my mother in July 2006. I want to give it to a builder for development. The latter wants to take it on a 50:50 basis and build a five-storied complex, with two 3BHK flats of 1,650 sq. ft on each floor. This is the only house I own. Please clarify how much capital gains tax I will incur? Will it be different if I sell three flats of the five I will get or if I let out three flats instead?

A.V.S.S.Sarma, Kakinada

Capital gains (or losses) occur only when an owned asset is sold or transferred. In your case, until you sell any of the flats you get, there is no implication of Capital Gains Tax. If you sell three flats of the five allotted to you, then from the date of sale deed registration, a long-term capital gains tax @ 20 per cent will be applicable, after calculating indexed value of acquisition cost and after deducting allowable expenses (repairs etc.)

I have a flat which is on loan and I am in the process of selling it. I need to know about the capital gains on property rules and IT. I hear that the amount has to be invested back in land or flat within two years. Can you advise me how to calculate gain/loss from the sale?

H. Natarajan, Chennai

Capital gains tax is a part of income tax. Any gain arising out of sale/transfer of an owned asset attracts capital gains tax. In case of immovable properties, if the asset is held for less than three years, it is classified as ‘short-term’ capital gains and if the asset is held for more than three years, it is classified as ‘long-term’ capital gains. Accordingly, capital gains tax has to be paid. However, if the capital gains are reinvested in a house (not land), within a specified period from the date of sale (within one year for ready-to-occupy property or three years for under-construction house), you can get exemption from capital gains tax.

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