Capital Gains Tax

Others 617 views 3 replies

Praveen

25 Points Joined July 2010

Hi,

This is my first message and I have very litle idea about how the capital gains tax systems works in India. I am currently in US. My wife sold her property around 3 years ago and put the amount in capital gains. We purchased a plot for 75% of the amount last year. Now our tax consultant says that this amiunt has to be invested in a house(not plot) within 3 years. We have only 3 months for completion of 3 years. What are our options?

a) Can we buy some more time so that we could complete the house on the plot purchased?

b) If No, how much tax/fine would we have to pay?

c) Any other options to avoid the tax?

I would really appretiate your help on this issue.

Thanks in advance

Replies (3)

Amir

Learner

4016 Points Joined December 2009

Dear Sir,

Your consultant is correct that period of 3 years is for the construction of new house from the date of sale of old house i:e construction should be completed within 3 years time. Only crunch is he should have told you this thing in advance.

Mere acquiring a plot will not help.

I understand that Construction cannot be completed within 3 months, if it has not been started as of today.

Further, even buying a new house will not help since the time limit, in case assesee wants to go for buying of house (instead constructing it) is 2 years from the date of sale of old house. So this limit has already expired.

Now, options for you -

1) The amount of exemption, which was claimed 3 years ago becomes taxable in the year of expiration of 3years and you will be required to pay tax @ 20%

2) If you have any capital losses(in India) - current year or in respect of earlier years that can be set off in order to reduce your taxable gain.

Praveen

25 Points Joined July 2010

Thank you 'Amir' for the reply..We are already in the process of constructing the house. It would be partially comleted in another 3 months. Could this be shown as a Completed house since we have all necessary proofs such as Electricity Application, Buliding Complete Certificate etc.?

Juzer Sadikot

CA - innovative solutions for Imports an

1309 Points Joined November 2008

Dear Mr. Praveen,

Constructing House within next 3 months (end of 3 years from the date of transfer) shall not grant you exemption from Capital Gains Tax. To avail Capital Gains Tax exemption, you were required to deposit amount of Capital Gains in Special Capital Gains Account Scheme [Section 54(2)] by the due date of filing Return of Income 31st July 2008 (Assuming the Sale of property was affected in the financial year 2007-08) failure of which your wife would be require to pay Capital Gain Taxes.

Now, you may arrange for payment of taxes (along with Interest) and ask your consultant to represent to Assessing Officer to regularize your tax affairs.

Regards

Juzer