Capital gain

Tax queries 902 views 5 replies
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AA
30 Points Joined June 2009

Recently I have supported my father build a new house from the capital gains of my appartment sale.

So now I assume my best options to get tax exemption would be to buy this property from my father. I that case will this transaction be a short term gain for my father , who is a retiree aged 70+.

Or  get loan by reverse mortaging my father's property to either buy an house or construct a new house

any suggestion

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On 23 June 2009 at 17:19 Report
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ARTICLE ASSISTANT
224 Points Joined April 2009
Originally posted by :Sharath
" Recently I have supported my father build a new house from the capital gains of my appartment sale. Can I get tax exemption if I show that I financed the construction which is in my fathers name. "

According to section 54 of the incometax act , it has been specified that the taxpayer can claim the exemption in case of a sale of house property and investing the money into purchase or construction of the new or old house property.so from this we can say that eventhough the property is acquired in the name of father, exemption u/s 54 is available.

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On 24 June 2009 at 08:52
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Tax Consultant
1559 Points Joined June 2009

Mr.Sharath

and

Mr.Nish*t A.Doshi

Please go through section 54 carefully.  For your convenience I have copied section hereunder.  The words used in the section  --- in the case of an assessee being an individual or a Hindu Undivided Family  ---- and the assessee has withing a period of --

Hence the exemption is available only to the assessee who has utilised the gains as contemplated in the section.  If the assessee utilises the gains for somebody else he is not eligible for exemption.

If the status of the assessee is HUF, the new asset may be acquired in the name of any member of the HUF. 

But in the present case though it is assumed that the staus of the assessee is HUF, father cannot be a memeber of the son's HUF.

Otherwise if the property belongs to the bigger HUF where the father and sons are members of that HUF and the property is in the name of one of the sons, if the son utilises the gains derived on sale of the property of the bigger HUF for acquiring new asset in the name of the father who is also a member of the bigger HUF, the exemption can be availed. 

Please note onus lies on the assessee that the assessee to establish that the property sold belongs to the bigger HUF and the father in whose name the new asset is acquired is a member the HUF.

Hope I have clarified the matter.

Best Wishes

Sathikonda

8354. 84[(1)] 85[86[Subject to the provisions of sub-section (2), where, in the case of an assessee87 being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset 88[***], being buildings or 89lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of 90[one year before or two years after the date on which the transfer took place purchased91], or has within a period of three years after that date constructed, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,
(i) if the amount of the capital gain 92[is greater than the cost of 93[the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.
94[***]
95[(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme96 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
Explanation.97[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

 

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On 24 June 2009 at 10:17
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Practicing CA
8639 Points Joined April 2009

 Agreed with sathikonda

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On 24 June 2009 at 12:02
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AA
30 Points Joined June 2009

Thank you for responding ..Nish*t,Amol, sathikonda. So now I assume Imy best options for me would be to buy this property from my father. I that case will this transaction be a short term gain for my father , who is a retiree aged 70+.

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On 24 June 2009 at 12:32
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ARTICLE ASSISTANT
224 Points Joined April 2009
Originally posted by :NISHIT A. DOSHI
"
i just missed out one thing to say that whenvere the concept of deemed ownership u/s 27 is applicable,exemption u/s 54 is available. so in the present case,if the concept of deeme ownership isapplicable then in that case ,exemption u/s 54 is available.

Originally posted by :Sharath


"
Recently I have supported my father build a new house from the capital gains of my appartment sale. Can I get tax exemption if I show that I financed the construction which is in my fathers name.
"



According to section 54 of the incometax act , it has been specified that the taxpayer can claim the exemption in case of a sale of house property and investing the money into purchase or construction of the new or old house property.so from this we can say that eventhough the property is acquired in the name of father, exemption u/s 54 is available.		 "
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On 25 June 2009 at 08:34


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