Exemption of long term capital gain
This query is : Resolved
13 February 2018
QUERIES ON EXEMPTION OF LONG TERM CAPITAL GAIN
QUERY (1) (a) A sold a residential property and earned long term capital gain of rupees 10 lakh.
(b) He purchased a PLOT worth Rs. 80 lakh JOINTLY with 3 others with equal share of 25% each. He paid his share of Rs. 20 lakh (being 25% of Rs. 80 lakh).
(c) The plot is constructed WITHIN THREE YEARS FROM THE SALE OF RESIDENTIAL PROPERTY BY ALL JOINT OWNERS INCLUDING A at a cost of Rs. 60 lakh out of which A pays Rs. 15 lakh (25% of Rs. 60 lakh)
(d) Thus, against Long Term Capital Gain of Rs. 10 lakh , he spends Rs. 35lakh and constructs residential property as a joint owner HAVING 25% SHARE .
WILL LONG TERM CAPITAL GAIN OF Rs.10 LAKH BE EXEMPT IN THIS CASE?
QUERY (2) A purchases a PLOT worth Rs. 80 lakh JOINTLY with 3 others with equal share of 25% each. He paid his share of Rs. 20 lakh (being 25% of Rs. 80 lakh). The plot is constructed WITHIN THREE YEARS from the purchase of the plot at a cost of Rs. 60 lakh out of which A pays Rs. 15 lakh (25% of Rs. 60 lakh). In between i.e. AFTER PURCHASE OF PLOT BUT BEFORE CONSTRUCTION, A sells his other residential property and earns a Long term Capital Gain of Rs. 10 lakh. Thus, A spends Rs. 35 lakh as a Joint owner HAVING 25% SHARE in purchase of land and construction thereon for the purpose of residential property as a joint owner but IN BETWEEN earns a Long Term Capital Gain of Rs. 10 lakh from other residential property.
WILL LONG TERM CAPITAL GAIN OF Rs.10 LAKH EARNED IN BETWEEN (THAT IS SELLING A RESIDENTIAL PROPERTY WITHIN THREE YEARS OF CONSTRUCTION) BE EXEMPT IN THIS CASE?
QUERY (1) (a) A sold a residential property and earned long term capital gain of rupees 10 lakh.
(b) He purchased a PLOT worth Rs. 80 lakh JOINTLY with 3 others with equal share of 25% each. He paid his share of Rs. 20 lakh (being 25% of Rs. 80 lakh).
(c) The plot is constructed WITHIN THREE YEARS FROM THE SALE OF RESIDENTIAL PROPERTY BY ALL JOINT OWNERS INCLUDING A at a cost of Rs. 60 lakh out of which A pays Rs. 15 lakh (25% of Rs. 60 lakh)
(d) Thus, against Long Term Capital Gain of Rs. 10 lakh , he spends Rs. 35lakh and constructs residential property as a joint owner HAVING 25% SHARE .
WILL LONG TERM CAPITAL GAIN OF Rs.10 LAKH BE EXEMPT IN THIS CASE?
QUERY (2) A purchases a PLOT worth Rs. 80 lakh JOINTLY with 3 others with equal share of 25% each. He paid his share of Rs. 20 lakh (being 25% of Rs. 80 lakh). The plot is constructed WITHIN THREE YEARS from the purchase of the plot at a cost of Rs. 60 lakh out of which A pays Rs. 15 lakh (25% of Rs. 60 lakh). In between i.e. AFTER PURCHASE OF PLOT BUT BEFORE CONSTRUCTION, A sells his other residential property and earns a Long term Capital Gain of Rs. 10 lakh. Thus, A spends Rs. 35 lakh as a Joint owner HAVING 25% SHARE in purchase of land and construction thereon for the purpose of residential property as a joint owner but IN BETWEEN earns a Long Term Capital Gain of Rs. 10 lakh from other residential property.
WILL LONG TERM CAPITAL GAIN OF Rs.10 LAKH EARNED IN BETWEEN (THAT IS SELLING A RESIDENTIAL PROPERTY WITHIN THREE YEARS OF CONSTRUCTION) BE EXEMPT IN THIS CASE?
07 July 2024
Let's address each query regarding the exemption of long-term capital gains (LTCG) in the scenarios described:
### Query 1:
**(a) A sold a residential property and earned long term capital gain of rupees 10 lakh.**
**(b) He purchased a PLOT worth Rs. 80 lakh JOINTLY with 3 others with equal share of 25% each. He paid his share of Rs. 20 lakh (being 25% of Rs. 80 lakh).**
**(c) The plot is constructed WITHIN THREE YEARS FROM THE SALE OF RESIDENTIAL PROPERTY BY ALL JOINT OWNERS INCLUDING A at a cost of Rs. 60 lakh out of which A pays Rs. 15 lakh (25% of Rs. 60 lakh).**
**(d) Thus, against Long Term Capital Gain of Rs. 10 lakh, he spends Rs. 35 lakh and constructs residential property as a joint owner HAVING 25% SHARE.**
**Will long term capital gain of Rs. 10 lakh be exempt in this case?**
In this scenario:
- A sold a residential property and earned LTCG of Rs. 10 lakh.
- He invested the LTCG amount of Rs. 10 lakh along with additional funds into a joint plot purchase and subsequent construction of a residential property within three years.
**Exemption Criteria:**
To claim exemption under Section 54 of the Income Tax Act for LTCG on sale of residential property:
1. **Investment in New Residential Property:** The LTCG amount must be invested in purchasing or constructing a new residential property within India.
2. **Timeframe:** The new property must be purchased either one year before or two years after the date of sale of the old property, or constructed within three years from the date of sale of the old property.
**Analysis:**
- A has reinvested a total of Rs. 35 lakh (Rs. 10 lakh from LTCG + Rs. 25 lakh additional funds) into the joint purchase and construction of a residential property.
- A's share in the new property is 25%.
**Conclusion for Query 1:**
Based on the provided information, A has reinvested the entire LTCG amount along with additional funds into the joint purchase and construction of a residential property. As long as all conditions of Section 54 are met, including the construction being completed within three years, A should be eligible for exemption of the LTCG of Rs. 10 lakh.
### Query 2:
**(a) A purchases a PLOT worth Rs. 80 lakh JOINTLY with 3 others with equal share of 25% each. He paid his share of Rs. 20 lakh (being 25% of Rs. 80 lakh).**
**(b) The plot is constructed WITHIN THREE YEARS from the purchase of the plot at a cost of Rs. 60 lakh out of which A pays Rs. 15 lakh (25% of Rs. 60 lakh).**
**(c) In between i.e. AFTER PURCHASE OF PLOT BUT BEFORE CONSTRUCTION, A sells his other residential property and earns a Long term Capital Gain of Rs. 10 lakh.**
**(d) Thus, A spends Rs. 35 lakh as a Joint owner HAVING 25% SHARE in purchase of land and construction thereon for the purpose of residential property as a joint owner but IN BETWEEN earns a Long Term Capital Gain of Rs. 10 lakh from other residential property.**
**Will long term capital gain of Rs. 10 lakh earned in between (that is selling a residential property within three years of construction) be exempt in this case?**
In this scenario:
- A purchased a plot jointly with others and started construction within three years from the purchase date.
- Before the construction was completed, A sold another residential property and earned LTCG of Rs. 10 lakh.
**Exemption Criteria:**
- For LTCG on sale of residential property to be exempt under Section 54, the investment in the new property must be made before or after the sale, not in between.
**Analysis:**
- A earned LTCG of Rs. 10 lakh from the sale of another residential property before completing the construction of the new property.
- A's investment in the new property (plot purchase and construction) is subsequent to the sale of the other property, which does not meet the timeline requirement for exemption under Section 54.
- The LTCG of Rs. 10 lakh earned in between the purchase of the plot and its construction cannot be exempted because the investment in the new property was not made before or after the sale, as required.
**Conclusion for Query 2:**
The LTCG of Rs. 10 lakh earned from the sale of the other residential property cannot be exempt under Section 54 in this case because the investment in the new property was not made in the required timeframe. Therefore, A would need to pay tax on the LTCG of Rs. 10 lakh unless other exemptions or provisions apply.
These conclusions are based on the details provided and the general understanding of tax laws. It's advisable to consult with a tax professional or chartered accountant for personalized advice considering all aspects of your specific situation.
### Query 1:
**(a) A sold a residential property and earned long term capital gain of rupees 10 lakh.**
**(b) He purchased a PLOT worth Rs. 80 lakh JOINTLY with 3 others with equal share of 25% each. He paid his share of Rs. 20 lakh (being 25% of Rs. 80 lakh).**
**(c) The plot is constructed WITHIN THREE YEARS FROM THE SALE OF RESIDENTIAL PROPERTY BY ALL JOINT OWNERS INCLUDING A at a cost of Rs. 60 lakh out of which A pays Rs. 15 lakh (25% of Rs. 60 lakh).**
**(d) Thus, against Long Term Capital Gain of Rs. 10 lakh, he spends Rs. 35 lakh and constructs residential property as a joint owner HAVING 25% SHARE.**
**Will long term capital gain of Rs. 10 lakh be exempt in this case?**
In this scenario:
- A sold a residential property and earned LTCG of Rs. 10 lakh.
- He invested the LTCG amount of Rs. 10 lakh along with additional funds into a joint plot purchase and subsequent construction of a residential property within three years.
**Exemption Criteria:**
To claim exemption under Section 54 of the Income Tax Act for LTCG on sale of residential property:
1. **Investment in New Residential Property:** The LTCG amount must be invested in purchasing or constructing a new residential property within India.
2. **Timeframe:** The new property must be purchased either one year before or two years after the date of sale of the old property, or constructed within three years from the date of sale of the old property.
**Analysis:**
- A has reinvested a total of Rs. 35 lakh (Rs. 10 lakh from LTCG + Rs. 25 lakh additional funds) into the joint purchase and construction of a residential property.
- A's share in the new property is 25%.
**Conclusion for Query 1:**
Based on the provided information, A has reinvested the entire LTCG amount along with additional funds into the joint purchase and construction of a residential property. As long as all conditions of Section 54 are met, including the construction being completed within three years, A should be eligible for exemption of the LTCG of Rs. 10 lakh.
### Query 2:
**(a) A purchases a PLOT worth Rs. 80 lakh JOINTLY with 3 others with equal share of 25% each. He paid his share of Rs. 20 lakh (being 25% of Rs. 80 lakh).**
**(b) The plot is constructed WITHIN THREE YEARS from the purchase of the plot at a cost of Rs. 60 lakh out of which A pays Rs. 15 lakh (25% of Rs. 60 lakh).**
**(c) In between i.e. AFTER PURCHASE OF PLOT BUT BEFORE CONSTRUCTION, A sells his other residential property and earns a Long term Capital Gain of Rs. 10 lakh.**
**(d) Thus, A spends Rs. 35 lakh as a Joint owner HAVING 25% SHARE in purchase of land and construction thereon for the purpose of residential property as a joint owner but IN BETWEEN earns a Long Term Capital Gain of Rs. 10 lakh from other residential property.**
**Will long term capital gain of Rs. 10 lakh earned in between (that is selling a residential property within three years of construction) be exempt in this case?**
In this scenario:
- A purchased a plot jointly with others and started construction within three years from the purchase date.
- Before the construction was completed, A sold another residential property and earned LTCG of Rs. 10 lakh.
**Exemption Criteria:**
- For LTCG on sale of residential property to be exempt under Section 54, the investment in the new property must be made before or after the sale, not in between.
**Analysis:**
- A earned LTCG of Rs. 10 lakh from the sale of another residential property before completing the construction of the new property.
- A's investment in the new property (plot purchase and construction) is subsequent to the sale of the other property, which does not meet the timeline requirement for exemption under Section 54.
- The LTCG of Rs. 10 lakh earned in between the purchase of the plot and its construction cannot be exempted because the investment in the new property was not made before or after the sale, as required.
**Conclusion for Query 2:**
The LTCG of Rs. 10 lakh earned from the sale of the other residential property cannot be exempt under Section 54 in this case because the investment in the new property was not made in the required timeframe. Therefore, A would need to pay tax on the LTCG of Rs. 10 lakh unless other exemptions or provisions apply.
These conclusions are based on the details provided and the general understanding of tax laws. It's advisable to consult with a tax professional or chartered accountant for personalized advice considering all aspects of your specific situation.
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