* I have been offered Rs 45 lakh for the sale of a flat that was purchased in May 2004 for Rs 14 lakh. How much would the capital gains for the period amount to, and how is it calculated? I have bought a house for Rs 50 lakh, of which Rs 25 lakh is paid for by a loan. This is to be handed over shortly. Can I offset the capital gains from the previous house to repay the loan of Rs 25 lakh on the second house? Can I deposit the capital gains in my savings account or should another account be opened?
S. Ram
Hyderabad
The sale of house property held by an assessee for 36 months or more entails long-term capital gains. The taxable capital gain is calculated by reducing the indexed cost of the house property from the net sale proceeds. The indexed cost is calculated with reference to the cost inflation index of the year of purchase and year of sale. The cost inflation index for 2004-05 was 480, while that for 2012-13 is 852. So the indexed cost will be around 24.85 and your taxable capital gains would be Rs 20.15 lakh. The applicable tax rate on long-term capital gains is 20.36 per cent. You can claim exemption from the sale of the flat as you are investing the proceeds for the construction of a new house within three years from the sale.
The relevant date for this purpose is the date of completion of the new house property and not the date of payment of the money. Since your investment in the new house is more than Rs 20.15 lakh, capital gains will be exempt as a whole.
Since you have already made the investment of the capital gains in the new house, you can use the sale proceeds the way you want. You needn’t repay the home loan for claiming the tax exemption.
* I’m an unmarried professional earning Rs 4.5 lakh a year, with both parents dependent on me. I have four life insurance policies: LIC Jeevan Saral (cover of Rs 2.5 lakh, taken on Feb. 10), LIC Market Plus (cover of 50,000, taken on May 10), ICICI Cashback (cover of Rs 3.25 lakh, Sept. 10) ICICI Pure Protect (Rs 30+Rs 17 lakh cover, taken on May 11) All these were bought to save on tax. How do I exit them with minimal loss? .
Sagar, Pune
LIC Jeevan Saral and ICICI Cash Back are traditional plans. These do not earn returns more than 5-6 per cent and are unlikely to beat inflation. Since we do not have the details of the-se plans, we are unable to review the same. It is advisable that you review the plans on the basis of surrender value today; future premiums payable and approximate maturity value and calcul-ate the internal rate of ret-urn (IRR).
Harsh Roongta is CEO, Apnapaisa.com. You can send in your queries to movingmoney@deccanmail.com [1]
Links:
[1] mailto:movingmoney@deccanmail.com