Reinvestment to avoid capital gains

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Arvind (Querist)
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14 July 2015 Hi,

We have a plan to construct a three floor building on a land that belongs to my grandfather in Bangalore. The investment for the construction would be from me and is the money obtained out of the sale of another piece of land, so I would like to avoid capital gains on the sale of this property by showing an investment back in the residential building being constructed.

After construction I would be owning a part i.e. one floor of the building and I am looking for the best method to get this done. I was advised that the best way to do this would be to enter into an agreement with my grandfather ( which would be registered ) showing the investment from my side and after that my grandfather could gift a part of the building being constructed against my name which would avoid a heavy stamp duty and registration charge while ensuing the capital gains is not taxed as there is a reinvestment.

Can you kindly confirm if this is the right method and also if I would have independent ownership of my portion at the end of the construction?

Regards,

Arvind

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 July 2015 Get your portion(undivided) of the land gifted to you, this will save stamp duty. Then invest in construction this will save you from capital gains and you will be owning a flat.
For other portions enter in to construction agreement.

CMA Gul S

CMA Gul S (Expert)
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14 July 2015 I agree with my Pal Mr Seetharaman

Arvind

Arvind (Querist)
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14 July 2015 Thank you both so if I understand this right my grandfather would need to gift a portion ( undivided ) part of the land to me and then we would need to jointly enter into an agreement for construction between us.

Does this entitle me to independent ownership of the portion of the flat post the completion of construction?

The only part I am not clear is when my grandfather should gift the part of land to me. Can this be done anytime after the start of construction or should this be done even before plan approval?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 July 2015 It can be done before start of construction.

Arvind

Arvind (Querist)
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14 July 2015 Thanks.. the reason I asked this was because if the gift deed is done before the start of the construction then the plan approval should be also done with joint owners?

If this can be done after the plan is approved then it would be easier and hence the query.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 July 2015 Yes do it after plan approval.

Arvind

Arvind (Querist)
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14 July 2015 I am told by the lawyers that the sub-registrar will not register any property (land in this case) which is not properly demarcated by metes and bounds and hence the gift deed cannot be made for undivided property.

Is this true?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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14 July 2015 It is a legal matter raise your query in lawyers club.

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