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Tax implications on sale of old flat

By Kanu Doshi
April 07, 2008 11:47 IST
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Buying a new flat by selling an old one allows you to get tax exemptions, but there are some conditions that need to be fulfilled.

I plan to buy a bigger flat and will sell my old flat to raise the funds. The old flat was bought 20 years ago and I expect to make a decent capital gain on the sale. What are the tax implications?– Nikhil Kothari

The sale of your old flat would result into long-term capital gains. However, under Section 54 of the Income Tax Act 1961, the same can be exempted because of the new flat you propose to buy. This section provides that the income from the present flat should be subject to tax under the head "income from house property".

Also, the property must be held for more than 36 months. The new house should be acquired no more than one year before, or two years after, or three years after the date of transfer of the old property. 

If these conditions are fulfilled, the long-term capital gain on your old house will be exempt to the extent of the capital gain invested in the new property. Also, there would be a lock-in period of 36 months on the sale of new property. If you sell it earlier, the exemption granted to you on the capital gain would be withdrawn and you will be asked to pay the tax.

I recently opened a new demat account in my new place of work. My existing stocks are in my old demat account at Surat for more than a year now. I have shifted and I want to transfer them to the new one for convenience. However, I am not sure how the gains from the sale of shares from my new account will be treated? Pheny Desai

Your shares will be treated as a long-term capital asset. The period, for which you held them in your old demat account at Surat, will be taken into account while computing the period of holding of the shares.

On your facts, they are long-term capital assets, even if you have transferred them from one of your demat accounts to the other and, if you now sell them at a surplus, the gain will be treated as a long-term capital gain and if STT is duly paid, it will be exempt under section 10(38) of Income tax Act, 1961.

I understand that with effect from April 1, 2008, the concessional tax of 10 per cent on short-term capital gains (STCG) on listed equity shares, on which Securities Transaction Tax (STT) has been duly paid, stands withdrawn and hence the stock markets are down. Is this correct?- Mihir Hindocha

This is not correct. The rate of tax on STCG arising from transfer of equity shares or units of equity-oriented funds where the securities transaction tax (STT) is duly paid, has not been deleted but merely increased from 10 per cent to 15 per cent (plus applicable surcharge and cess).

The day traders operating on stock markets are upset that the STT paid will not be available for set-off against the income tax they had to pay on trading income.

For my accounting year ended 31 March 2008, I have made payment of Rs 79,000 in cash to my CA for professional fees as per his suggestion. I now understand that the entire amount will be disallowed to me. Is it correct? - Sujatha Natrajan

The good news is that payments made up to March 31, 2008 will not be disallowed. You should be able to successfully contend before the tax authorities that the amendment in law should not apply to your case.

By implication, payments made in cash up to March 31, 2008 are fully protected and cannot be disallowed. But you must not make any more payments in cash, which are in the excess of Rs 20,000. Otherwise, the entire amount will be disallowed as business expense.

The writer is a chartered accountant

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