Capital gain on house property

Tax queries 175 views 2 replies

Jaydeep Desai

7 Points Posted on 25 October 2016

I live in a residential flat which is the only property in my name. Plannig to buy a residential plot worth 28-30 lacs taking bank loan only for plot, before March 2017 and get it registered in my name. Further, I wish to start construction of residential house on that plot by March 2017 either giving construction contract with material to a third party with agreement or only labour contract to a third party. I may or may not opt for housing construction loan. Construction agreement will be done before March 2017. After about a year ie nearly comnpletion of the house, I plan to sale my existing flat and expect net capital gain considering indexation, as about 15-18 lacs. Sale agreement will be either in FY 17-18 or in FY 18-19 beginning. Can I claim construction cost of house to save capital gain tax on flat which I sold after or nealy conpletion of the construction? I do not want to sell flat before conpleting house. Do I have to restrict flat sale agreement in a particular FY? Kindly guide how to plan all above so that I can legally save capital gain tax.

Replies (2)

saurabh kumar

Tax Consultant

348 Points Posted on 25 October 2016

You can claim exemption u/s 54 if you get your house constructed within 3 years from the date of transfer ,even if the construction work has been started before sale of property.But try to keep the date of sale within one year from the date of commencement of construction so as to avoid any objection from the Income tax department.(Although 1 year prior to date of transfer is condition for purchase(not construction) of new house property).In the case of cit v/s j.r. subramanya bhat(1987) 165 itr 571(karn) a decision was given that construction of House can be commenced before the date of transfer of old house property.

You can refer the following link for further details

https://indiankanoon.org/doc/237769/