Long Term Capital Gains on Residential Propoerty

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Bivendu Saha (Querist)
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07 January 2021 Party A (mother) and Party B (daughter) are co-owners of Property No 1 (residential house).
Party A also owns another Property 2 ( Flat). They have decided to sell Property 1 to a builder for for a total sum consideration of Rs 2 crs which is to be bifurcated as Rs 1.4 crs in cash and 2 new flats (Property 3 to Party A and Property 4 to Party B) to be constructed on the same Property 1 by the builder (each new flat is expected to be of approx value of Rs 30 lacs). So Party A and Party B will receive 1 flat each and Rs 70 lacs each.

Party A and Party B also now wishes to invest the above money received into buying another new residential flat Property 5 for a total investment of Rs. 1 cr.

Property 5 will be used by Party B as her residence.
Property 3 and 4 will be used to store old furniture from Property 1 and occasional visits by both the parties. But these will not to be rented out.

Query:
1. Post the above investments made into the new property 5 both Party A and Party B will be left with Cash of Rs 20 lacs each in hand - so how much is LTCG for each party considering value of Property No. 1 was originally Rs 60,000 in 1962 and later valued at Rs 40 lacs in 2001.

2. Party A already was owning a residential Flat (Property 2) at the time of Sale of Property 1. Through sale of Property 1 and re-investments she has become sole owner of Property 3 and co-owner of Property 5 jointly with her daughter. Since section 54 allows investment of consideration in upto 2 residential properties and now she will be sole owner of Property 2 and Property 3 and co-owner of Property 5, what is her LTCG and applicable taxes. Would want to understand if we need to consider either of Property 3 or Property 5 as as a LTCG and not as reinvestment since she is already owning 1 residential property beforehand.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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07 January 2021 1 Market value 40 lacs in 2001 so capital gains not applicable.
2 Investment made in 2 houses only after the sale hence capital gains tax will not be applicable. Already owning a house will not affect exemption.

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