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

Tax saving options - capital gains

CA J.Alamelu lakshmi (Chartered Accountant) (852 Points)

28 July 2014

One Civil Contractor sold his long term asset Land during FY 2013-14 for Rs.70 lacs. He has invested the proceeds around Rs.50 lacs in another land in which he plans to construct flats and sell in the future.

What can be the options to save tax in this case?

Reply
Follow
Share

9 Replies

Tribhuvan Aditya Singh (Student as well as Self-employed) (3710 Points)
Replied 29 July 2014

i guess that purchase of land for use in business will not qualify for deduction under 54f..... for sec 54f, a residential property is to be purchased. another option for saving tax is to invest in bonds of NHAI and REC to claim deduction of sec. 54ec.

Mihir (Wealth Manager) (5293 Points)
Replied 29 July 2014

First compute the LTCG. He may claim exemption u/s 54F when purchasing another plot. But later if he construct a building and sells flats, they will have to be converted into stock-in-trade.

Tribhuvan Aditya Singh (Student as well as Self-employed) (3710 Points)
Replied 29 July 2014

@ mihir.... but mere purchasing of plot will not allow deduction of 54f, construction of residential property has also to be done on such plot to be eligible for 54f....

CA J.Alamelu lakshmi (Chartered Accountant) (852 Points)
Replied 29 July 2014

Yes. That is what the problem. We cant claim Exemption u/s 54F since the amount is invested in land. Also he does not have enough funds for sec 54EC.

What will be the impact if the sold land is deemed to be stock in trade from the date of its purchase itself ? In that case I guess, the sale consideration would be taxed @ 30% when compared to LTCG tax of 20%.

Mihir (Wealth Manager) (5293 Points)
Replied 29 July 2014

Yes, i am wrong but land also is an asset and exemption should be allowed. Not enough funds to construct a house nor buy bonds. Maybe some adjustment in black and white will reduce his liability.

Tribhuvan Aditya Singh (Student as well as Self-employed) (3710 Points)
Replied 29 July 2014

a small room meant for residential purpose is enough for calling it a residential property.... i guess this will work...

(Guest)

Section 54F --Assessee eligible for exemption : Individual or HUF

But

you can claim exemption u/s 54EC upto Rs.50 lakhs

CA J.Alamelu lakshmi (Chartered Accountant) (852 Points)
Replied 29 July 2014

But 54F exemption wont be available since the assessee purchased land to construct flats and sell.

Tribhuvan Aditya Singh (Student as well as Self-employed) (3710 Points)
Replied 29 July 2014

@ lakshmi.... as i said... construct only one small room with bathroom and kitchen... it will then be said to be residential property and then 54f exemption can be claimed. other conditions being equally applicable.