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Capital gain from selling residential property

omesh (executive) (31 Points)

05 May 2015

I had purchased a ready built flat in 2012.Sale agreement deed was made in Aug 2012 and possession was in Sept 2012.Now I am planning to sell my flat .My queries are:

1)for the calculation of long term capital gain(ie. more than 3 years), which date is considered ie. sale agreement date or possession date?

2) If I want to reinvest the profit(Long terma capital gain) into buying another property, then What is the condition for it?

3) If there is any clause of completion(possession) of new aquired property with in some time frame?

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6 Replies

CA HAYEDAR SHAIKH (Practice ) (622 Points)
Replied 06 May 2015

Dear Omesh,

1. Date of agreement should be taken in to account for calculation of LTCG.

2 & 3. Conditions:–
- Under section 54 exemption is available only if the capital asset which is transferred is a residential house property.

- The house property which is transferred should be a long-term capital asset, i.e., held for more than 36 months.
- To claim the exemption the taxpayer will have to invest the capital gains either for the purchase of another residential house property (old or new) within a period of one year before or two years after the date of transfer or in the construction of another residential house property within a period of three years after the date of transfer.
- If the whole of capital gains are invested in the cost of the house so purchased or constructed, the entire capital gains will be exempt from tax. If, however, the amount of capital gains is greater than the cost of the house so purchased or constructed, the difference between the two will be chargeable to tax.

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(Guest)

To be on a safer side date of possession should be considered that is sept 12

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CA HAYEDAR SHAIKH (Practice ) (622 Points)
Replied 07 May 2015

Dear Madam,

For the purpose of section 54, the date of agreement should be taken as the date of purchase.

The same was held in the case of CIT v. R.L. Sood[2000] 108 Taxman 227/245 ITR 727 (Delhi).

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(Guest)

The case law you have cited speaks of date of agreement/possession of the new asset which is purchased u/s 54.

It says that "Merely because the builder failed to hand over possession of the flat to the assessee within the period of one year, the assessee cannot be denied the benefit of the said benevolent provision. This would not be in consonance with the spirit of Section 54 of the Act."

You are right in quoting Central Board of Direct Taxes issued Circular No. 471 (see [1986] 162 ITR (St.) 41), dated October 15, 1986

In Mr Omesh's case as a ready flat was purchased and the time gap between agreement and possession is just 1 month in my opinion it is prudent for him to comsider possession date.

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