LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Long term capital gains

19 December 2015

I will get a Long Term Capital Gain of around 1 Crore on selling property A now.

I booked an under-construction property B on April 2012. Agreement value is just above 1Crore. Construction started on June 2012. Registration was done on June 2014. Construction is almost over now. I’m yet to get the keys and possession letter. I have made 90% payment.

As per my understanding, according to Section 54, to claim exemption from Long Term Capital Gain Tax,

A new residential property must be purchased either 1 year before the sale or within 2 years after the sale of the property/asset.
Or the new residential house property must be constructed within 3 years of sale of the property/asset

Can I claim exemption from sale of property A, if I sell it now and get possession of property B in the next two months?

Please advise.

Regards,

Suresh

Reply
Follow
Share

4 Replies

CMA Thiru (CA FINAL STUDENT) (378 Points)
Replied 19 December 2015

Section 54: Old Asset: Residential Property, New Asset: Residential Property Under Section 54 ? Any Long Term Capital Gain, arising to an Individual or�HUF, from the�Sale of a Residential Property�(whether Self-Occupied or on�Rent) shall be exempt to the extent such�capital gains is invested�in the Purchase of another Residential Property�within 1 year before or 2 years after�the due date of transfer of the Property sold and/orConstruction of Residential house Property within a period of�3 yearsfrom the date of acquisition Provided that the new� Residential House Property purchased or constructed is�not transferred within a period of 3 years�from the date of acquisition If the�new�property is sold�within a period of 3 years�from the date of its acquisition, then, for the purpose of computing the capital gains on this transfer, the cost of acquisition of this house property shall be reduced by the amount of capital gain exempt under�section 54�earlier. The capital gain arising from this transfer will always be a short term capital gain. QUANTUM OF DEDUCTION UNDER SECTION 54 Capital Gains shall be exempt to the extent it is invested in the purchase and/or construction of another house i.e. If the entire amount is equal to or less than the cost of the new house, then the entire capital gain shall be exemptIf the amount of Capital Gain is greater than the cost of the new house, then the cost of the new house shall be allowed as an exemption

Ankit Taprania (CA FINAL ) (542 Points)
Replied 19 December 2015

yes sir , you can claim exemption u/s 54 .

what is relevant for section 54 is the purchase of residential propery and not the possession or registration . they only enhance your title in property.

BUT remember your investment in new house should be equal or exceeds the the sale proceeds of old house otherwise only partial exemption will be available to you.

Miss Rinkal (Student) (1304 Points)
Replied 20 December 2015

@ Suresh Prabhaharan :

What is the date of allotment letter for the under construction property ? That will be your date of acquisition of property and not the registration date in case of under construction property.

Exemption u/s 54 states that property has to be purchased before 1 year or after 2 years from the date of sale of the property or if you are purchasing an under construction property then 3 years from the date of sale. In the given case, you have already purchased an under construction property. Even though the possession is not delivered but if the allotment letter is received it is sufficient that the property belongs to you. In your case if the allotment letter date is say June 13 then from that date the property is said to have been purchased.

Refer case law Vinod kumar Jain vs CIT judgement of Punjab and Haryana High Court for further clarifications.

So according to me, you cannot claim exemption u/s 54 of Property B from sale of Property A

CA Vap Patel (Practice) (1205 Points)
Replied 20 December 2015

Exemption on capital gains under section 54 cannot be refused merely on ground that construction of new house had begun before sale of old house.[CIT v. HK Kapoor 150 CTR 128 (All) (1998)] -

Even though construction had started before sale of property “A”, you can still claim exemption. As you said construction is almost completed, which means it is still not completed fully and possession is also not yet handover to you, So the basic condition that construction should get completed (in other word possession should be handover) in Three year after sale of property is fully satisfied and hence you are eligible for exemption.

Regards