Suneet Chandna (3 Points)
19 August 2017Hi,
If a person has two properties and he sells one of these two properties( one which currently is rented out) and uses the proceeds from sale to buy another property.
Does the person need to pay long term capital gain tax in this scenario.
Thanks
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(160886 Points)
Replied 19 August 2017
The long term capital gain will arise over the sell of the (second) property, which will be exempted under section 54/54F, when the amount is reinvested in any house property within stipulated time.
If any excess gain not utilized in the new investment would be liable to tax, upto that excess amount.......
Suneet Chandna
(3 Points)
Replied 19 August 2017
Thanks for the answer.
The doubt arrised due the point d.
If you are using your entire sale proceeds to buy a house property you may end up paying no tax on your gains when – You satisfy all these conditions
(a) You purchase ONE house within 1 yr before the date of transfer or 2 yrs after or construct ONE house within 3 yrs after the date of transfer.
(b) You do not sell this house within 3 yrs of purchase or construction
(c) This new house purchased or constructed must be situated in India
(d) You should not own more than 1 residential house (other than the new one) on the date of transfer
(e) You do not purchase within a period of 2 yrs after such date or construct within a period of 3 years after such date any residential house (other than the new one).
I suppose point d will impact only if a person has more than 2 properties and he is selling only one. So in that case he will have more than one property at the time of buying the new property and he will not be able to avail exemption
Thanks
Kushal Pande
(CFO)
(256 Points)
Replied 25 August 2017
Section 54F is not applicable in your case. It should be Section 54 as you're dealing with LTCG on sale of house property.
Section 54F would've been applicable if it was sale of any long term capital asset, other than house property!
There is no such restriction as you've mentioned in (d) in Section 54. Such restriction is only applicable to 54F and NOT 54.
Also up to 50 lakhs can be invested u/s 54EC within 6 months from the date of sale of the long term capital asset (house property, in your case) in LTCG Bonds issued by NHAI / REC, lock-in period is 3 yrs, yearly interest @ 5.25% p.a. The simple interest is taxable on accrual basis but the principal i.e., 50 lakhs becomes entirely tax free on bond redemption at the end of 3 yrs!
Say for example:
House sold on:
25/08/2017 (FY 2017-2018)
Can invest maximum of 50 lakhs in LTCG Bonds u/s 54EC within:
25/08/2017 + 6 months = 25/02/2018
Return filing due date:
31/07/2018
Have to invest the whole/remaining LTCG amount in house property before return filing due date:
31/07/2018
If can't invest in house property before return filing due date, have to put the whole/remaining LTCG amount in CGAS before return filing due date:
31/07/2018
After putting the LTCG amount in CGAS before return filing due date,
(i) OPTION A: you've to invest in a ready to move in house property within:
25/08/2017 + 2 yrs = 25/08/2019 or,
OPTION B: you've to invest in an under-construction house property or construct your own house and must obtain Occupancy/Completion Certificate within:
25/08/2017 + 3 yrs = 25/08/2020
(ii) if no such investment or only partial investment is made, then that whole or remaining amount lying in CGAS Type A and/or B account(s) becomes taxable @ 20% as LTCG in the following FY:
25/08/2017 + 3 yrs = 25/08/2020 = FY 2020-2021
So, when LTCG amount = 2.5 crore, then:
u/s 54EC = 50 lakhs
u/s 54 / 54 (CGAS) = 2 crore
OR,
LTCG = 2.5 crore
u/s 54 / 54 (CGAS) = 2.5 crore
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