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Capital gains

subra (share business) (67 Points)

07 January 2012

Dear Sir,

Under sec 54 F, I invested in CGFD at State bank of india ,the entire sale proceeds of a land purchased in 1995 which was sold in 2009 for 4750000. The three years will be getting over on 21.01.2012 from the date of sale and registration. I do not own any house in my name. Larsen and toubro started a construction of 17 storeied flat at Sirusetri,chennai and now few completed flats are available andif i purchase one flat from them for the entire amount of 4750000, can i get capital gains exemption. Or whether the AO will argue that flat construction was started by Larsen and Toubro ( as per their site details on net) 6 months before selling my land ?

Whether the beginning and completion of the newly constructed flat by the builder should be within 3 years from the date of sale and registration of the land ?

Thanks.

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3 Replies

Z ( ) (2960 Points)
Replied 07 January 2012

It is not necessary that the assesse himself should construct the property CIT v. Smt. Bharati C. Kothari

"Where the assessee sold a flat, and within two years entered into an agreement for the purchase of a new flat which was under construction, and paid the amounts in instalments within three years of the sale of the earlier flat, exemption is admissible"

Time limit for buying a property (including partially constructed) is one year before or 2 years after date of transfer therefore only option left is INVEST in construction of house property

"completed flats are available andif i purchase one flat from them for the entire amount of 4750000, can i get capital gains exemption"

Larsen and Toubro are inviting buy/purchase offer and not the construction offer. Since date for availing exemption for buying has lapsed only construction contracts can be taken for availing exemption

"Whether the beginning and completion of the newly constructed flat by the builder should be within 3 years from the date of sale and registration of the land ?"

Date of completion is insignificant , significance is of time limit within which the INVESTMENT is to be made

Even if you INVEST in construction of property (by yourself or though builder /contractor) on the last date of time limit , i.e even if construction has not started , you will be entitled for exemption u/s 54F

1 Like

subra (share business) (67 Points)
Replied 07 January 2012

Sir,

Thank you very much for the very valuable information.

I have few more queries.

1) I have two weeks time. The actual amount to be invested is only Rs 3750000 only as i have unnecessarily locked the entire sale proceeds of Rs 4750000 in CGFD account. You have suggested sir to invest in construction of property by myself or through contractor/builder.

2) How to convince assesing officer that i have invested in construction of property myself and that too in two weeks. How to do that .Please help me

3) If it is through builder who is constructing a house or flat which is halfway through , whether i have to pay a cheque to him for the full amount of 3750000 to get expemption? or i can even pay a portion of Rs 3750000

4) Can I purchase a land now and register it in my name within two weeks and in construction of a house in that land what formalities i have to do to convince AO & how much i have to pay the builder within two weeks to get exemption from CG? Whether i have to put a contract with him also to show it to AO?

5) I have purchased a land in my name and in my wife's name 9 months ago and whether i can use that land to use for construction of a house either myself or through builder to get CG exemption?

Thank you in advance sir.

Z ( ) (2960 Points)
Replied 07 January 2012

Sorry for the late reply my reply was accidently deleted by me

I think 5th option is the best

Exemption is allowed is investment i.e purchase/construction is in joint name (including spouse)

CIT Vs. Ravinder Kumar Arora (Delhi HC)

Yes you can use that land for construction but the construction should be real and not symbolic , even ADDING A FLOOR qualifies for availing the exemption. Make arrangement for bills

If there is vaccant adjacent land then money invested on construction and purchase of new land will also qualify for exemption (CIT v D. Ananda Basappa ( 2009 ) 20 DTR 266 (Kar)).

More detail on this part in

/forum/details.asp?mod_id=180725&offset=1

/forum/details.asp?mod_id=180725&offset=2

Enter into contract of purchasing a land and also try to get it register, prepare deeds etc ASAP

If you want to construct the property through contractor/builder then genrally the contract price is fixed (unless there is escalation clause) Construction contract include the contract price

If the contractor is good/ or you know him well then you might wanna consider giving lumsum payment . That way AO can not deny the investment

Incase of sec 54F exemption available is calculated as

LTCG X INVESTMENT / Net sales consideation

Amount not utilized will be chargeable to LTCG tax