Tax Implications of Selling One Flat to Buy Two in an Apartment Complex
The process of selling one flat and using part of the proceeds to purchase two flats within the same apartment complex raises several tax questions. Tax laws and the specific wording of your agreement with the seller or the apartment complex may influence the situation. This guide provides a general overview of the tax implications and the steps you should consider.
General Income Tax Implications
When considering the sale of a residential property and its subsequent use to purchase another property, it is essential to understand the income tax implications. Generally, if all proceeds from one property are utilized to purchase a subsequent property, no income is deemed to be earned and hence not taxable. However, if a portion of the proceeds is retained for other purposes, the retained amount may be subject to income taxes.
For detailed information, it is highly recommended to consult a local tax professional. They can provide personalized advice tailored to your specific circumstances.
Investment in the Same Apartment Complex
In the case where both flats are within the same apartment complex or society, under the Indian Income Tax Act, they are treated as a single property for purposes of residential investment from capital gains. This has been adjudicated by the Supreme Court, and you may be required to cite this case in your tax filings.
It is important to note that this treatment usually applies to the investment in a single residential property per tax year within a city. Therefore, the seller and purchaser must be aware of these rules when selling or acquiring the flats.
Section 54 Exemption for Long-term Capital Gains
The exemption under Section 54 offers significant benefits for those who sell a residential property and reinvest the capital gain into a new property. This exemption applies if the original residential property sold is held for more than 36 months. Effective from April 2017, a property held for more than 24 months after purchase qualifies as a long-term capital gain.
Starting from the fiscal year 2019-2020, taxpayers can invest the capital gains from the sale of a property into two residential properties and claim an exemption under Section 54. Importantly, this exemption is limited to a maximum capital gain of Rs. 2 crores. This benefit can be availed only once in a taxpayer's lifetime.
Before the fiscal year 2019-20, taxpayers were limited to investing in only one residential property to benefit from Section 54.
How to Simplify the Process
To make the tax filing process more straightforward, consider using a tax software like ClearTax. Using such software can help you manage your taxes efficiently and ensure all necessary documents are in order.
For updates and further guidance on financial matters, follow ClearTax on social media and their official website. ClearTax aims to simplify finance for individuals and businesses by providing clear, user-friendly solutions and personalized tax advice.