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54 & 54F Doubt

NASM13 (Article Clerk) (63 Points)

31 August 2010

Hi.

I have a small query.

I had purchased a flat for 19 Lacs in 2003. I sold it for 86 Lacs (52Lacs agreement Value and 34 lacs Cash) in July 2010. What will be my LTCG tax. How can i avail benefits of 54 or 54F. How can i utilise the black amount? Can the proceeds from sale of residential property be utilised for buying Commercial property. Can i avail benefits of 54 section if i buy a commercial property?

Some one please calculate LTCG tax for me in the above scenario.

Thnx

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9 Replies

vishnupriya (CA Final) (1418 Points)
Replied 31 August 2010

Dear Friend!

Your LTCG is

Net Sale Consideration Rs. 5200000

Less: Indexed Cost of Acquisition Rs. 2593520

(1900000 / 463 x 632)

Long Term Capital Gains Rs.2606480

If you have any expenses on transfer you can deduct them from Rs. 52.00 Lacs to arrive Net Consideration. If you consider sale consideration as Rs. 86.00 Lacs, your LTCG will be for Rs.60.00Lacs (app)

54F applies only when sale consideration of other than residential house is utilised to purchase a residential house.

You can avail sec.54 by purchasing another residential property (Whatever the use may be either letout or residential)

You can invest your black money in new property, by mentioning that amount is interest free received from friends & relatives.

NASM13 (Article Clerk) (63 Points)
Replied 31 August 2010

Thnx..

Can i avail the benefits of sec54 if the new property is commercial property..

vishnupriya (CA Final) (1418 Points)
Replied 01 September 2010

No 54 is not applicable to commercial property

Suresh Prasad (www.aubsp.com) (15630 Points)
Replied 01 September 2010

Exemption upto Capital Gain from transfer of Residential house property

As per Sec. 54 "......such capital gain is invested in the Purchase of another residential house property.......and/or in the construction of a residential house property......."

It is clear from the above that the new property should not be a commercial property. Further, in CIT v Vidya Prakash Talwar it is said that the emphasis is not on the type of the property, but on the head under which the rental income is assessed .

Rishab (A.C.A.) (155 Points)
Replied 01 September 2010

Hi. NASM13,

Firstly Your query is not small, its bit complicated.

You sold the property it for 86 Lacs (52Lacs agreement Value and 34 lacs Cash) in July 2010.

You have attracted Capital Gains and AIR reporting. Keep your records & all entries in proper form.

As your Agreement Value is 52Lacs, you cannot show it as 86 Lacs. How you will prove in cross verification, this amount will be added to your income by ITO and tax will be payable as per slab rates + Penalty for concealment of Income (Un declared Cash).

Section 54: applies only when sale consideration of residential house is utilised to purchase a residential house.

Section 54F :applies only when sale consideration of other than residential house is utilised to purchase a residential house. (Means you can sell commercial property and buy residential property-subject to other terms).

I don’t agree with advice of Vishnu Priya that You can invest your black money of Rs. 34 Lacs in new property, by mentioning that amount is interest free received from friends & relatives.

After investing the amount your transaction will be reported AIR, so by this way or under normal scrutiny, You may get inquiry from Taxman. So be prepared to answer. Again just by stating that the money is borrowed from friends and relatives will not suffice,

(1) you will need Bank transfer entry for loan above Rs. 20,000/- otherwise your friends and relatives will also be in trouble,

(2) You will have to keep confirmation slip from your friends and relatives stating that they have given you the said amount on loan,

(3) Their PAN Nos.

(4) This may get cross-verified by the ITO.

The Simple solution would be:

(a) Maintain clear records of all transaction (Sale and Purchase).

(b) Black Money: Declare the cash amount of Rs. 34 Lacs as Income from some business & pay tax as per slab rates.

(c) Black Money: Invest this amount of cash (BM) in buying another property in cash (Black) and partly from (clear white) funds.

(d) Capital Gains: Pay the amount of Capital Gains Tax & buy commercial property, if you find it viable.

(e) Capital Gains: Invest in another residential property.

(f) Capital Gains: Deposit the amount in Capital gains a/c till you buy another residential property.

NASM13 (Article Clerk) (63 Points)
Replied 01 September 2010

Thnx A lot.. Can you give me the details of amount to be invested in new residential property so that i avoid capital gains tax..

riyaz shaikh (student) (77 Points)
Replied 02 September 2010

RISHUB IS TRUE.

BUT 1 MORE WAY TO INVEST RS. 34 LAKS, SELECT UR NEW PROPERTY (RES OR COMM) GO TO BANK FOR LOAN ABOVE PROPERTY TAKE SHOR TERM LOAN (EG 3 TO 5 YEARS) AND PAY UR ALL BLACK MONY. AFTER PAYMENT OF ALL INSTALMENT UR PROPERTY BECOME WHITE.

NOTE:- SHOW UR TRANSACTION IN UR BALANSHEET EVERY YEAR.

TAKE CARE FRIEND

NASM13 (Article Clerk) (63 Points)
Replied 02 September 2010

Riyaaz ur answer is very vague.. can you be a lil specific..

riyaz shaikh (student) (77 Points)
Replied 03 September 2010

see u have 34 laks correct.

if u want to purchase new property from 34 laks, go to bank or any financial institut who can finance for ur new house or shop, take a loan just like 20lakes for 5 years. eg ur instalment p.m. is 50000. deposit 50000 in ur bank account every month and pay ur instalment by cheqe. give effect of this transaction every year in ur balance sheet .u can get benefit of interest on loan, and pricipal amount.

note:- dont take flat or shop in ur name, if u have already purchase in ur name

my advise take flat in the name of ur wife, son above 18 years, mom, or dady, who r file return every year.

thank you,