Capital Gains Tax

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.

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