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Tuesday, February 23, 2010

Capital Gains:- On sale of Property

Rajan, I have sold a residential plot recently. I acquired it in 2001 for 6.5 lacs and sold it at 44 lacs in 2008 Oct. I already own a flat from last 3 years. I believe I am not eligible to reduce capital gains under sec 54 or 54F. Not very keen on 54EC. If I want to pay tax on capital gains, how much it will be. Is there a different slab of tax with and without considering the index? Can you please elaborate.
GIRISH
Recently I have received this comment on blog post BUY HOUSE SAVE CAPITAL GAIN ON SALE OF HOUSE ,I have replied Girish as required but while replying I have noticed that he is not very keen on taking relief given under Section 54EC.So I made a comparison between Investment in Capital gain Bond and payment of Capital gain and invest balance money elsewhere.After reading this Analysis it will be helpful to choose between both the product.Before this just look at main features/condition of section 54EC
  1. Long Term Capital Asset:Long term assets means any capital asset held by assessee for more than 3 Years.
  2. If assesee has sold the Long term capital asset during the previous year and made a long term capital gain then he can invest money of capital gain in Capital gain bonds and can save tax on long term capital gain.
  3. Assessee here means all type of assessees,like individual,firm company etc.
  4. Amount to be invested in bonds is only capital gain not net consideration received on sale of long term capital asset
  5. Amount exempted under this section will be amount of capital gain or amount invested in capital gain bond which ever is lower maximum upto 50Lakh
  6. These Bonds Maturity Period is Three years
  7. Capital gain bonds eligible under this section are now can be issued only by REC or NABARD
  8. Bonds can not be pledged ,sold transfer before completion of three years from purchase of bonds ,and in case its transferred then amount capital gain exempted on investment in these bonds will be made taxable in that previous year as Long term capital gain .
  9. Amount of capital gain should be invested in Capital gain bond within 6 Month from date of transfer/sale of capital asset .
so now evaluate two option and take first option.
Example : On sale of long term asset suppose capital gain amount is 1000000 Rs .


Option-1: Amount of Long term Capital gain Bonds Invested in Capital Gain tax Bond ,Rate of Interest is 5.75 REC bonds


On investment of 1000000 rs in Bonds ,tax payout will be Nil and we will get interest 57500@ 5.75p a at the year end ,suppose we will invest 57500 interest received at the First year end and second year end @ 9% per annum annually compound rate, we will get at the following amounts at maturity .


Now Take second Option :Pay Capital gain Tax and Invest balance amount elsewhere .I have calculated the maturity amount at different interest rates compounded annually.The details are given Below on the basic of balance amount invested and amount at maturity at different Interest Rates.





So from the above we can say that if one can invest balance amount after payment of tax in such a way so that annual rate of return is more than 14.39%@ CAGR then it is beneficial to pay tax at one go as compare to investment in capital gain Bond otherwise he should invest in Capital gain bond and take benefit u/s 54EC .Though the rate of interest offered on capital gain Bond is just 5.75% but Internal rate of return (IRR) will come as 14.39(CAGR) due to out go of log term capital gain tax in first year @20 % plus surcharge on log term capital gain.

Now specific answer to his query


  • Non eligible for section 54:section 54 is available only if log term asset sold is a residentila house property ,so Gisrish has correctly said that sec 54 is not vailable to him,as he has sold land not a residential house property.
  • Non eligible for section 54F:undersection 54F ,person can avail relief from paying long term capital gain tax arises on sale of long term capital asset,if he invest net sale consideration in a house in specefied time ,but he should not own more than one house at the time of transfer of long term asset other than purchased under this section(new house).In this Case Girish owned a house on the date of transfer of the property (land) so he is not correct and eligible for section 54 F
  • Capital gain with or without indexation:For sale of land there is no option for calculation of tax without indexation and pay tax at lower rate.
  • Tax calculation:As you have not given month of plot purchase so I have assumed it as after march 2001 so on the basic of your tax calculation is given as under

    sale price=44

    indexed cost of purchase =6.5 X 582/426=8.88

    capital gain=44-8.88=35.12


    tax on capital gain 35.12 @ 20%=7.02 Lakh
  • Regarding availing relief u/s 54EF or not it depends on person to person,however necessary calculation which will be helpful in selecting right option at right time is given above.

If you have different views then please record in comment section.


Read more: http://www.simpletaxindia.org/2008/10/capital-gain-bond-us-54ec-vs-capital.html#ixzz0gLjSyl2k
Under Creative Commons License: Attribution

Monday, February 22, 2010

Why save 1411 Tigers?

Aircel has recently realized a social responsibility of saving the tigers. Around a century back there were some 100000 tigers in India but now as per their data only 1411 have left. Around 60+ tigers died in the year 2009. I had visited many national parks in the past, but I had never come across any tiger just except the talks of spotting the tigers.
It is right we should definitely work towards saving our national animal. I dont understand that why GoI has not initiated this mission,rather some another party Aircel is manging the show. Do they want to become the icon of saving dying tigers in India? I doubt as if the Brand Aircel is not selling why not sell the tigers?
Tigers are on the verge of dying buy why do we require them? A simple question. What have changed ecologically when they were exceeding 1 lacs nos to down 1411? Who is exactly at the end of food cycle? There are speculations that food cycle will be affected if there would be no tigers. DO you accept this scientifically? Do just 1411 tigers are behind the sustainence of lives of 120 crore Indians? Infact today Human beings are at the end of food cycle and we should save the human beings rather. The Human Beings should be healthy and well nourished. Its an advanced stage of civilization and I dont think it is justified to place the tigers at the end of the food cycle. Let them enjoy in the Zoos an attraction for the tourists and for locals to earn money out of them.

The time and effort that we invest on saving the tigers must be put on saving the human beings from getting affected from deadly diseases like HIV, Cancer etc.

Why dont we promote the fact 100 people got affected today from HIV?

I think rather than saving the dying tigers we should save the human beings first. Make it a strong breed that it must be able to sustain the attach of local and foreign bodies. It may be extraterrestrial also!

It seems the cause of saving tigers sells more than saving a human being's life? The corporate mantra of Aircel is really effective.

........Ankur

Saturday, January 16, 2010

1 in every 5 divorces is caused by Facebook!

Bangalore: Social networking site Facebook, which connects old friends and allows users to make new ones online, is being blamed for an increasing number of marital breakdowns, reports the Telegraph.

Divorce lawyers claim that the explosion in the popularity of websites such as Facebook and Bebo is tempting to people to cheat on their partners. One law firm, which specializes in divorce, claimed almost one in five petitions they processed cited Facebook.



Suspicious spouses have also used the websites to find evidence of flirting and even affairs which have led to divorce. Mark Keenan, Managing Director of Divorce-Online said, "I had heard from my staff that there were a lot of people saying they had found out things about their partners on Facebook and I decided to see how prevalent it was I was really surprised to see 20 percent of all the petitions containing references to Facebook. The most common reason seemed to be people having inappropriate sexual chats with people they were not supposed to."

Flirty emails and messages found on Facebook pages are increasingly being cited as evidence of unreasonable behaviour. In fact, computer firms have even cashed in by developing software allowing suspicious spouses to electronically spy on someone's online activities.

One 35-year-old woman even discovered her husband was divorcing her via Facebook. Conference organiser Emma Brady was distraught to read that her marriage was over when he updated his status on the site to read: "Neil Brady has ended his marriage to Emma Brady."

Around 14 million Britons are believed to regularly use social networking sites to communicate with old friends or make new ones. The popularity of the Friends Reunited website several years ago was also blamed for a surge in divorces as bored husbands and wives used it to contact old flames and first loves.