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PRIYA KANANI (CHARTERED ACCOUNTANT) (127 Points)

05 June 2012

Female assessee having two commercial properties sold as under-

1) COA: Rs 328840 dated 11.01.2008 sold for Rs 450000 on 15.07.2011

2) COA: Rs 120000 dated 17.05.1994 sold for Rs 1460000 on 30.08.2011

and purchased a residential house property in dec 2011 for Rs 1215500

so,

for the 1st property there will be capital loss amounting to Rs 18493 (450000- 328840 * 785/551)

and for the second house property there will be capital gain amounting to Rs 183592 (1460000- 120000*785/259) - (1096293 * 1215500/1460000) (Is exemption u/s 54F available?)

Are these calculations correct??

And, net capital gain amounting to Rs 165099 be taxed at flat 20% rate or will be aggregated in total income of the assessee?

Please help in the matter as soon as possible.

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12 Replies

Mayank Mall (CA-Final) (316 Points)
Replied 05 June 2012

Well Section 54 F states sale of a residentail property and purchase of another within time limits given.....in your case the sale is of a commercial property and thus the section shall not be applicable.

If the indexes you chose for the base years are correct ( 2011 is 785, is correct) , then there doesn't seem any problem in the calculation ( cost of improvement taken as nil)....

Ad finally the net capital gain is a long term capital gain thus will be taxed at a flat rate of 20% and not added to you gross total income. The tax calculated at the flat rate will be added to the total tax payable on your total income.

Hope it helps !!!

Prateek Agarwal (Sr. Executive - Finance & Accounts) (1732 Points)
Replied 05 June 2012

Yes, exemption u/s 54F is applicable as it relates to sale of any long term property other than residential property.

Mayank is portraying sec 54 of the act.

Rest all your calculations are correct (i have not checked the indexes).

The net LTCG shall be taxable @ 20% and will be added to the income of the assessee subject to shifting of income (adjustment with basic exemption limit i.e. Rs. 180000)

Regards

Mayank Mall (CA-Final) (316 Points)
Replied 05 June 2012

Oops am sorry......that's right I got confused into sec. 54 house property.....54F is for sale of any long term property other than res. house and buying a res. property within limits.....that's right....sorry for the mistake again. And Thankyou Prateekji for correcting me.

PRIYA KANANI (CHARTERED ACCOUNTANT) (127 Points)
Replied 05 June 2012

@ prateek: wt does this mean?? "The net LTCG shall be taxable @ 20% and will be added to the income of the assessee subject to shifting of income (adjustment with basic exemption limit i.e. Rs. 180000)" (* 190000)

n are these calculations correct as I have taken seaparately both the properties and exemption is applied to the onw where the assessee has gained..or it will be done proportionately?

also, i wanted to ask that the assessee can deposit the net LTCG in bank to avoid LTCG Tax?

Prateek Agarwal (Sr. Executive - Finance & Accounts) (1732 Points)
Replied 05 June 2012

Shiifting of income is possible only when the other incomes of the assessee falls below the max exemption limit i.e. 190000.

Suppose, the other income is Rs. 100000 apart from your cap gains.

Then 90000 can be utilised for the basic exemption from the cap gains part.

It is upon the assessee to see what is beneficial to him. Hence, I think your decision is correct.

And to escape tax, you have to deposit the same in Cap Gains Deposit Scheme instead of a bank account.

1 Like

Mayank Mall (CA-Final) (316 Points)
Replied 05 June 2012

I too agree with prateek sir.....CGAS has to be utilised for the same purpose of buying a residential property in the same time limit.....and you cannot replace it with a bank account.

The calculations you did are correct, we apply exemption as above and not proportionately.

PRIYA KANANI (CHARTERED ACCOUNTANT) (127 Points)
Replied 05 June 2012

She has other income of around 188000.

Yes, i meant deposit scheme..

wt amount does she need to deposit? it is net capital gain part or consideration less investment i.e. 1460000-1215500 ?

n i hav also heard that acc to sec 54F, net sale consideration is to be invested?is it true?

or she has to invest in property amounting to 1096293*1215500/1460000?

Mayank Mall (CA-Final) (316 Points)
Replied 05 June 2012

The amount of net consideration which is not utilised by her by the date of filing of return, is to be deposited in the scheme. Thus, the amount eligible for deduction will be the both the amount invested and CGAS.

Now, Exemtion = Cap. Gain X Amount Invested / Net Sale Cosideration.

Thus if she wants full exemtion on cap. gain, she need to invest the entire net consideration or the proportionate exmeption shall be availed.

1096293*1215500/1460000 = Exemption for the current year. The balance 1460000 - 1215500 is to be deposited in CGAS and invested within 3 years time limit to claim full exemption on 1096293, else if she invests just 1215500 then the figure as obtained by 1096293*1215500/1460000 will be exempted and the balance in 1096293 will be taxed at flat rate of 20%.

Thus she can claim proportionate exemption on any amount of investment, but to get full exemption she'll need to invest entire net consideration into the new residential property.

1 Like

PRIYA KANANI (CHARTERED ACCOUNTANT) (127 Points)
Replied 06 June 2012

ultimately, solution is-

property no. 1 - sale price = 450000, indexed cost = 468493 ltcl = 18493 (to be c/f)

property no. 2 - sale price = 1460000, indexed cost = 363707 invested in house property 1215500 therefore, amount of exemption u/s 54F will be 1096293 * (1215500/1460000) = 912701 and she has to deposit in deposit scheme Rs 244500 (1460000-1215500) Exemption on Deposition in Capital Gain Account Scheme 1988 U/S 54F: 1096293 * (244500/1460000) = 183592 therefore no cg or cl.. (1460000-363707-912701-183592)

n ltcl from 1st property will be c/f. rest she has other income amounting to rs 185000 after deductions..

is it correct?

Mayank Mall (CA-Final) (316 Points)
Replied 06 June 2012

....she will need to attach a proof of depositing the amount in CGAS. Her other income is already exempt (below. taxable slab).....and the carried forward ltcl can be adjusted against future ltcg.

So...in short....your calculations above are correct.

1 Like

PRIYA KANANI (CHARTERED ACCOUNTANT) (127 Points)
Replied 06 June 2012

@ Mayank: Thanks for your cooperation. Otherwise no one was replying to my query. I have posted this query 3 times on caclub. But no appropriate response i got. I dont why I dont get replies, I am sure I select the appropriate category while posting. Kher Leave all this!

Thank You so much...

Please tell me if she is efiling her ROI then, she cannot attach the proof of the said deposited amount na?

Mayank Mall (CA-Final) (316 Points)
Replied 06 June 2012

Actally, I believe the answer to your query has already been answered by members here, you are not the first one with a query on sec 54F capital gain. Members here wan't you to first search through the already solved problems so as to eliminate the double posting. This is just a site utilising resources, so each time you post you are actually using a space on the server that too for free.....so from ethical points, you should first go through the available solutions.......most probably this is the reason why your query went unanswered.

Anyway, I can understand the urgency in some cases, and also the problem of searching.......anyway getting back to your post, I think one need not submit a proof during efiling, as you cannot attach any document, but you'll need to submit the prrof in case you are required to do so by the concerned authority,