Applicability of Section 54 of income tax act

Tax queries 1823 views 4 replies

CA Manthan Bhanushali

Chartered Accountant

30 Points Joined January 2009

Hi, I recently sold my residential flat for 78 Lacs (which is higher than stamp duty value, therefore sec. 50C not applicable) , which I purchased 3.5 years ago for40 lacs. The Indexed cost of acquisition comes to58 Lacs, which arises a long term capital gain of 20 lacs (78-58)....

However, 9 months ago(from the date of selling above flat), I had booked an under construction residential flat from a reputed builder for 70 lacs, the possession of which is after 2.5 years. I already paid5 lacs as down payment and will pay10 lacs as first installment before end of this Prev. year. The rest of amount will be paid in installments(which fall after this prev. year) as and when the due dates come up.

Am I eligible for exemption u/s 54 of the Income Tax Act? If yes, what amount of money should I deposit under Capital Gains Scheme before the due date of filing returns of this prev. year? Any comments/suggestions would be highly appriciated..

Replies (4)

CA. Sidharth Sahni

47 Points Joined February 2010

Hi,

If the flat you purchased is under self financing scheme, similar to that of DDA, then you need to deposit CG less already invested in the new property in the Capital Gain Scheme.

Amount already invested shall count after the date of sale of your residential flat and not before it.

As per Circular No. 672, dated 16.12.1993, if the terms of the schemes of allotment and construction are similar to those of DDA, such cases may also be treated as cases of construction for the purposes of Section 54 and 54F.

There have been quite a few case laws which state that Completion of Construction is not a criteria for allowing deduction u/s 54 and 54 F. The amount should have been invested.

So you can safely invest the balance in Capital Gain Account Scheme.

Regards

CA. Sidharth Sahni

valji

Accounts manager-MBA

2150 Points Joined July 2008

hi you have to invest Amt of capital Gain Amt in capital gain investment scheme accounts

Where the amount of capital gain is not so utilized for the purchase or construction of a new residential house before the due date of furnishing of the return of income, it shall be deposited by him on or before the due date in an account with a public sector bank in accordance with the Capital Gain Account Scheme, 1988)

valji

Accounts manager-MBA

2150 Points Joined July 2008

The transferor assessee should purchase a residential house in India within a period of one year before or two years from the date of transfer or construct a residential house within three years from the date of the transfer of the original house. (Construction must be completed within these 3 years.),

For closing this account (Capital Gain Account Scheme, 1988 )the permission of Assessing officer are required

If the amt is not utilized for the purpose of purchase of residential property within period of two year then amt fully taxable if partly amt is utilized then balance which is not so utilized is taxable as a Long term capital Gain

New Residential house should not sale within 3 years otherwise Amt is fully taxable