Adjustment of capital gain in constructing new house

I own a residential property (property A). I bought another property (Property B) - land with old house built. I have demolished old house on this property B and started building a new house  thereon. Now I have decided to sale property A.

Property A was purchased for Rs. 9 lacs in Oct 1994

Property B was purchased for Rs. 35 lacs in Oct 2010

Expected cost of construction on property B is Rs. 30 lacs (started from Oct 2011 and to be completed by Dec 2012)

Therefore, total cost of new residential property is 65 lacs.

Property A will be sold for Rs. 75 lacs in February 2012.

Long term capital gain arising from sale of property A (after considering cost inflation index) : Rs. 48 lacs

Will this long term capital gain be completely adjusted against my cost of contructing a new residential property (that is purchase of land and construction thereon) ?

Thanking in advance for your learned opinion,

shreekant

 

 

 

 

 

Replies (2)

The purchase or construction has to start either before 1 year or within 2 years (time frame of 3 yrs)from the date of sale of property. And based on details provided by you, Your sale would happen on Feb'12 and construction work has started within this time frame of 3 years. In my opinion you would be able to claim the exemption.

The condition for starting the construction applies from the date of Sale of House A.

Expenditure incurred after that date would be eligible for exemption.

In case the construction has started before the transfer of House A, the construction cost and cost of land would not qualify for exemption. A plain reading of Section 54 suggests so.

 

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