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Qery regarding LTCG

CA Parth Verma (NYU Stern Alumni ) (90 Points)

22 February 2011

Mr A sold a plot and have LTCG of 20Lacs

In same yr he purchased a house for 50lacs for which he took loan of 40 lacs.

Kindly tell the LTCG exempted u/s 54.

Thanks in advance

Parth

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9 Replies

Pankaj Arora (Learner) (3134 Points)
Replied 22 February 2011

If you invest this LTCG of 20lacs in new house purchase than its exempt u/s 54.

Arjun (CA Final) (106 Points)
Replied 22 February 2011

Pankaj under section 54 exemption is available only if residential house is transfered.

in the given case exemption is available U/s 54F

⁶³[Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. ⁶⁴

54F. (1) ⁶⁵[Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or ⁶⁶[two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

⁶⁷[Provided that nothing contained in this sub-section shall apply where—

(a) the assessee,—

(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or

(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.]

Explanation.—For the purposes of this section,—

⁶⁸[***]

⁶⁹[***] “net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

(2) Where the assessee purchases, within the period of ⁷⁰[two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.

(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred.]

⁷¹[(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme ⁷² which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

(i) the amount by which—

(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1),

exceeds

(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,

shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and

(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.

Explanation.— ⁷³[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]]

CA Himanshu Bansal (Risk Manager) (2345 Points)
Replied 22 February 2011

Exemption not available U/S 54, since capital asset transferred is not a residention HP.

You can avail the same under Section 54F., which can be calculated by following formula :

Amount of LTCG X Amount Invested

Net Sale consideration

1 Like

Sunshine (Helping All) (10575 Points)
Replied 22 February 2011

agreed with Himanshu...

1 Like

(Guest)

Sec.54 says,

Applicable to individual and HUF.

Conditions : Assessee has transferred a long term residential house, income of which is taxable
	under the head income from house property.

	Assessee must acquire a new residential house with in prescribed limit.

Stress :
	Capital asset must be a long term capital asset.
	Property must be a residential house whether let out or self occupied.
	Income of such property must be taxable u/s.22 CIT V.vidya prakash talwar 1981 (del)
	Land transferred appurtenant to a house property (assessable u/s.22) together with
	such house property, also qualifies for deduction u/s.54.


	The new residential house may not be taxable u/s.22.
	eg. A new house acquired for the residence of employee shall be eligible for deduction.

Time limit for acquisition of new asset.

For purchase
	With in a period of 1 year before or 2 years after, the date of transfer.

For construction
	With in a period of 3 years after the date of transfer.

	Construction may start at any time but must be complted within stipulated time.

			CIT V. J.R.subramanya bhat.

Scheme of deposit		Applicable

	Note : In case of compulsory acquisition of such capital asset by the govt.
	the time limit shall start from receipt of compensation or part thereof.

Deduction
	Minimum of the following

	Investment in the new asset ( including amount deposited in deposit scheme)
	Capital gain.

Revocation of benefit :

If the newly acquired residential house is transferred with in 3 years from
the date of acquisition or construction of new assets,

then the benefit availed earlier shall be revoked.

Such revoked income shall be reduced from the cost of acquisition of new asset.


If the amount held in capital gains deposit account scheme (1988) is
unutilised,

then such amount shall be taxable as LTCG in the previous year in which
the period of 3 years from the date of transfer expires.

Notes :

Legal title of the house
Holding of the legal title is not necessary. It is sufficient that the assessee has made the full
(or substantial) payment with in the time limit eventhough the transfer deed has not been registered
and the possession is given after stipulated time.

		CIT. V shahzada begum (1988) (AP)

Limitation on number of new house acquired.

Exemption is not limited to acquisition of one house.
Asseessee may acquire more than one residential house.

Assessee may sell 2 house properties and may purchase 1 house proprty
for the purpose of availing exemption.

Nature of new house.

If the capital gain is invested in extension of existing building ( eg. Construction of new floor)
it shall be treated as acquisition of new house.

		CIT. V. Narasimhan (PV) 1990 mad.

If the capital gain is invested in acquisition of a right in a house property
which is already used for residential purpose,
it shall be treated as acquisition of new house.

		CIT V. chandaben maganlal 2000 (guj)

Construction Vs. Purchase

Where the assessee has partly invested the capital gains on the purchase of
another house and partly on construction of new floor to the house so purchased
with in the prescribed time limit,

then the expenditure incurred on purchase as well as on construction
shall be eligible for dedution.

		CIT. V. sarkar B.B 1981 del.

Treatment of co-owner

In case, co-owner transfers/releases his share in favour of another co-owners then such transfer/release
shall be qualified for deduction.
			CIT V. T.N. aravinda reddy 1979 sc

transfer of part house

Exemption u/s.54 is available on sale of the part of the house if the same is an independent unit.



Treatment of land

The cost of land is integral part of the residential house.

Treatment in the hands of legal heir.

the benefit of see.54 is also available to the heir of deceased assessee
provided he fulfills conditions of sec.54.

Property in foreign country

The new house may be in india or outside india. Prema P.shah V. ITO (mum). 2006

cost incurred for making house habitable.

For purpose of claiming exemption u/s.54 investment in residential house
would not only include cost of purchase of house but also cost incurred for making house habitable.
			Saleem fazelbhoy V. CIT (mum) 2006

Live link between capital gain and investment is not necessary.

There is nothing in provisions of sec.54

to warrant establishing a direct nexus or live link between the amount of capital gain
and the cost of new asset.

Ex.
If an assessee utilises LTCG on sale of house for purchasing and selling shares
in between before depositing the capital gain in capital gains accounts scheme,1988
and subsequently purchases a house it is qualified to claim exemption u/s.54.

		Ajit vaswanit V. CIT (Del) 2001

Construction by a third party

Construction of house need not be made by the assessee himself,
as it can be constructed by a third party for the assessee.

		CIT V. Uma budhia (kol) 2004

Construction by co-operative societies

Allotment of flat under self financing scheme of DDA or similar scheme of co-operative societies
or other institutions is treated as construction of house for u/s.54.

			Circular No.471 & 672.

Purchase of property while residing

If there is a bona fide purchase, the revenue cannot be permitted to say that assessee is
not entitled to exeption under the provisions of sec.54.

merely because assessee was residing in house which was purchased by the assessee.

			CIT V. Chandanben maganlar (guj) 2002

The word purchase for the purpose of sec.54 must be interpreted
in its ordinary meaning as buying for a price or equivalent of price.

		CIT V. Uma budhia (kol) 2004

Capital Gains accounts scheme,1988

Introduction

if the new asset is not acquired till the due date of submission of return of income
then the assessee will have to deposit the money in capital gains deposit account
with a nationalized bank.

the proof of deposit should be submitted along with return of income.

on the basis of actual investment and amount deposited in deposit account
exemption will be given to assessee.


utilisation of amount

Assessee is to acquire a new asset by withdrawing from deposit account.
new asset must be acquired within specified time provided in sec.54

If deposit amount remains unutilised

Unutilised amount will become chargeable to tax in the previous year in which
the specified timelimit expires.

Nature of gain

It will be taxable as LTCG.

Note :

Unutilised amount can be withdrawn by the assessee after the expiry of aforesaid time limit.
Unutilised amount capital gains account scheme 1988 in the hands of legal heir of deceased
individual cannot be taxed.


Regards

K.Ilayaraja.

(Guest)

https://www.taxpointindia.com/rrcapitalgaindeduction.html

CA. Anubhav Jaggi (CA) (104 Points)
Replied 23 August 2011

The fact that the statute provides for deduction in respect of new residential house acquired within one year before the transfer of a residential house (being the subject matter) as also eligible for deduction, the purposive interpretation of S. 54 would lead to the inference that the direct nexus need not be established between sale con-sideration and investment in new residential house.

Hence, whole of Rs. 20 Lacs is exempt from capital gain tax.

pisuapti jagannath (ceo) (33 Points)
Replied 15 November 2011

what happens if a person mistakenly keeps the untilised money in FD in a major scheduled bank and pays TDS on the interest earned. what are the implications. kindly elaborate.

Dattaprasad (Audit Officer) (184 Points)
Replied 15 November 2011

for getting expemtion under the Sec 54 of the act, the have to made deposit in a separate account called capital gain account scheme. if you have made in the said account you will get theexemption

however this is available for specified period only. if you have not made any purchase or construction of the asset with in the time specified in the Act, thewhole amount treated as long term capital gain in the AY in which the assesee failed to complied the conditions..

till date what ever amount received as interest from bank is treated as income from other source