Capital gains on residential land

Others 950 views 5 replies

Rajesh

28 Points Joined December 2013

Hi, Please clarify...

I have sold a piece of land for Rs.500000 which was purchased in 1984 for Rs.10000. To avoid paying tax on the Capital Gains, do I need to invest only on Residential House or can I invest even on Residential Land.

Also can I purchase the land on my spouse's name or do I need to purchase only on my name? Please clarify.

Replies (5)

CA. Kuldeep Singhi

Entrepreneur

424 Points Joined June 2011

No u hv to purchase house property only as per Sec 54 F & u can take it in the name of spouse also

CA Ankit Mittal

Charterd Accountant

118 Points Joined January 2011

Rajesh,

As for your first question

You can avail an exemption from LTCG tax by reinvesting the LTCG in a new residential property within the specified time frames (within one year prior to sale date or two years from the sale date or within three years from the sale date for an under-construction property), subject to fulfilment of other specified conditions under section 54 of the Act. The quantum of exemption under section 54 is restricted to the lower of investment in new house or LTCG resulting from sale of old property.

Note that investment of LTCG in land only shall not qualify for tax exemption under the Act. However, if you have acquired a land with an intention to construct the house thereon, then the exemption could be availed subject to construction of the property within three years of the sale of old property. The documents such as quotation from builder may be obtained to prove the bonafide intention of construction of the new house on the acquired land.

If you are unable to invest LTCG towards purchase or construction of new house either partly/entirely by the due date for filing your tax returns for FY13, you could deposit the unutilized LTCG into the Capital Gain Account Scheme (CGAS) and avail exemption from LTCG in FY13 for the old property. Further, to ensure that the said exemption is not revoked in future, you should utilize the amount deposited into CGAS for the purchase or construction of a new property within the aforesaid time frame. If you are unable to utilize the amount deposited into CGAS for purchase or construction of new property within the aforesaid timeframes, then the unutilized amounts shall be taxable as LTCG from the end of three years from the date of sale of property.

As regards to the second question

No you can't purchase the new residential property in Spouse's name but if you can purchase in the joint name with first name being yours and second your spouse's

Hope this helped

CA. Kuldeep Singhi

Entrepreneur

424 Points Joined June 2011

Ankit ji as regards to your reply to 2nd question I would like to draw your attention to case law of CIT v. Kamal Wahal (Delhi Highcourt) 2013 , where it is made clear that resenditial property can be purchased in the name of wife

M L Babu

Tax Consultant

63 Points Joined August 2013

Yes, you can purchase the HP in your name or in the name of spouse, but an ITO would interpret Sec 54 according to the letter of law (literal interpretation)....and no allowance for reinvestment would be allowed...But there are several caselaws which allows the same...but you have to appeal to CI T (Appeals) or even to a jurisdictional High Court for a absolute remedy.

CA Pallav Singhania

IT System Auditor

33683 Points Joined April 2010

hi Rajesh,

You can get exemption U/S 54F if the investment is in purchase of a residential property..

Purchase of Residential House within 2 years after or 1 year prior to date of transfer; or construction of residential house within 3 years from date of transfer.

Must not own more than 1 residential house other than the new asset on the date of transfer of original asset.

Or can avail exemption U/S 54EC Investment of whole or any Part of Capital Gain in ‘specified assets’ as stipulated in the section. Investment should be made within 6 months from the date of transfer. Bond of NHAI or REC...

for more details click here