08 April 2023
Mr.X had 2 residential properties with holding period of more than 5years as in 2019. 1st property he sold and claim exemption u/s54 in the year 2019 by purchasing a new residential house. Now he want to sell his second house in 2023 and claim exemption u/s 54. this time inorder to claim capital gain exemption he wants to invest his capital gain amount in construction of house on a land owned by himself and his 2 brothers (the land is owned by them in equal ratio)
Q1: Can he claim exemption u/s 54 ? Q2: If all the 3 brothers invest money and construct a 6bhk villa, will Mr.x be able to claim capital gain tax exemption as per his share of investment in building the 6bhk villa. Q3: What proof/documents need to be kept save for Income tax purpose wrt to his share of investment in the 6bhk villa. Q3: In future if the property is sold after holding the period required for longterm capital gain, can he claim capital gain exemption again upon reinvesting the gain in a residential house. Q3: What other taxation aspects or angles need to be taken care while doing the above transaction in your suggestion.
08 April 2023
A1: Yes, Mr.X can claim exemption u/s 54 for his second house if he invests the capital gain amount in the construction of a residential property. However, there are certain conditions that need to be met to claim the exemption, such as the investment should be made within the specified time frame and the property should be held for a minimum of three years.
A2: Yes, Mr.X will be able to claim capital gain tax exemption as per his share of investment in the building of the 6bhk villa, provided he invests the capital gain amount in the construction of the residential property and the property is held for a minimum of three years.
A3: Mr.X needs to keep proper documents and proof of investment in the 6bhk villa, such as receipts of payments made to contractors, bills for building materials, and other related documents. It is important to maintain proper records for income tax purposes to substantiate the claim of exemption u/s 54.
A4: Yes, Mr.X can claim capital gain exemption again upon reinvesting the gain in a residential house in the future, provided he meets the conditions laid down under the Income Tax Act.
A5: While doing the above transaction, Mr.X should ensure that he complies with all the relevant tax laws and regulations. He should also consider other taxation aspects such as stamp duty, registration charges, and GST on construction services. Additionally, he should seek professional advice from a tax consultant or a chartered accountant to ensure compliance with all applicable tax laws.
11 April 2023
Thanks a lot respected Ca Sanat Pyne for your detailed answer, i appreciate the time taken to reply in detail.
In A5, as per my understanding wrt GST as it is a construction based on individual level and not as as firm/company/Aop/trust etc., the 3 brothers would not be liable to aquire GST. They will be the end consumers for the material purchased and the construction service opted without any setoff. So they would just be paying the GST on the goods and services and add it to cost of construction. Is that correct ?
11 April 2023
"In A5, as per my understanding wrt GST as it is a construction based on individual level and not as as firm/company/Aop/trust etc., the 3 brothers would not be liable to aquire GST. They will be the end consumers for the material purchased and the construction service opted without any setoff. So they would just be paying the GST on the goods and services and add it to cost of construction. Is that correct ?"
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