Regarding Sale And Purchase of Residential Property

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A family business is purchasing a new home for £4.5 crore, financed partly by a £3 crore bank loan. They plan to sell their current home for £1.5 crore within a year of buying the new one, intending to reinvest the proceeds into their business after another year. Their CA believes the £1.5 crore will be subject to Capital Gains tax, which the querent questions given the purchase of a new residential property and the timing of the sale. The response suggests the 3-year window (1 year prior, 2 years after purchase) is crucial and advises clarifying the CA's reasoning, as mere possession isn't always the deciding factor for asset transfer.

Saurabh Agarwal

Saurabh Agarwal (Querist)

14 January 2020 Dear Members,

I have a query regarding Purchase and Sale of a Residential Property and would be very grateful if you all could put some light on to it.

Ours is a family business and my father is buying a home worth 4.5 Cr in which we would take a loan of 3 Cr from the bank.
At the same time we would sell the house in which we are living at a rough price of 1.5 Cr within a period of 1 year after purchasing the new home.

This amount of 1.5 Cr we would want to use in our business after a span of 1 year but as per our CA this 1.5 Cr would be applicable for Capital Gain.

My question is that when we are already buying a residential property and taking a loan of 3 Cr and selling a our exiting house within a span of 1 year then why will Capital Gain be applied to the 1.5 Cr what we will get after selling our existing home. Pls suggest

Amol S Joglekar

Amol S Joglekar (Expert)

14 January 2020 Your contention is correct.

Amol S Joglekar

Amol S Joglekar (Expert)

14 January 2020 See, this window of in all 3 years (1 year before or 2 years after) is very critical. Many case laws suggest that mere possesion is not the confirmatory test of transfer of asset. So to say I suggest that you better ask your CA why he is contending so,

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