Capital gains exemption

Tax queries 281 views 3 replies

Sharmi

Director

25 Points Joined February 2016

Hello,

I had booked a flat 6 years ago in 2009 for which construction is stalled and there is no hope of getting possession in the near future as the builder has many such stalled projects. I have paid close to 95% of the total sale price for this flat, and currently have no outstandings. I am trying to sell this incomplete flat and wanted to understand the Capital Gains implications. I booked another flat, in another city, in the year 2014, and am making construction linked payments for this second flat.

Now if I sell the first flat in the year 2016, and invest the sale proceeds in the second flat, then can I claim Capital Gains exemption? I have incurred expenses for the first flat in the form of lawyers fees etc as I have filed case against the builder in National Consumer Disputes Redressal Forum. In addition there has been loss in interest income, as my money is blocked in the first flat.

Would be grateful if some advice is given.

Thanks

Replies (3)

Guest

It was not a pleasant query to read. Considering that u have made 95% of the payment and then the construction has been stalled. May you succeed in the legal remedy.

Coming to income Tax Provisions.

For investment in property under construction - Period of Holding will be calculated from the date of allotment. - So if u sell the first property in 2016 - It would be a long term capital asset -

Various courts and tribunals have held that purchase of property under construction and making construction linked/part payments would qualify as construction of a residential house - Eligible for exemption u/s 54.

Also there is no bar for on the commencement of the construction activity - Only criteria is that construction of the house should be complete within 3 years.

Courts have taken a view that section 54 being a beneficial provision should be given a liberal interpretation - hence exemption shall not be disallowed even if your builder fails to handover the possession in the 3 years.. provided substantial payments have been made.

Hope your query is resolved.

CA Prateek Jain

New Delhi

Sharmi

Director

25 Points Joined February 2016

Thanks for your reply Mr Jain.

So if I understand you correctly, I can invest the sale proceeds from sale of my first incomplete flat in the second flat that I have booked (and the allotment of this second flat predates the sale realization of the first flat) and claim long term capital gains exemption against such investment?

Regards,