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Query about capital gain tax exemption

Saurabh (Software Professional) (31 Points)

12 March 2012

I have recently sold a residential site (plot) in Bangalore which resulted into long term capital gain tax. I need to invest into another property / house to get an exemption from capital gain tax.

Does my new investment need to be in residential plot or it can be home, agricultural land or something else?

Please can you adivse Thanks. Saurabh

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CA Hemang Shah (PRACTICE) (658 Points)
Replied 12 March 2012

U can buy / construct 2nd residential house AS per sec. 54 F. Make sure that on the date of u buying this new house if u have more than 2 housse then u cant avail this exemption. Sec. 54F available only when if u sold any long term assets and acquiring 1st or and 2nd residential house subject to on date of buying u have not more then 2 residential units. U cannot acquire any urban land / agricultural land. But wait for the other opinion... Its my view...other view may be different.

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PrabhuJ (student) (41 Points)
Replied 12 March 2012

you have two options. one is sec 54EC that will give exemption for long term capital gain tax to get this exemption we have to invest some specified bonds like REC or NHAI subject to the amount prescribed within the time limit specified in this section.

another is sec 54F, to get this exemption you have to purchase/construct a residential house within the time limit specified by this section subject to certain conditions (ie, the assessee does not own more than one residential house other than new asset on the date of transfer). cost of the new residential house should not less than the net consideration.

If you wish to get this exemption you have to invest the amount of capital gain in capital gain account scheme before filing of return. this deposit amount may use for the above purpose even after the filing of return with exemption.

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Saurabh (Software Professional) (31 Points)
Replied 13 March 2012

Thank you for your replies. Currently I don't own any houses.

Can I get tax exemption if I invest in a residential plot and a house (or two houses) ?

Please advise. Thanks

john (LEARNER) (549 Points)
Replied 13 March 2012

As per section 54 capital gain arising from the sale of the long term residential property can be saved if we buy or construct a residential house property for long term form the capital gain amount.

Important points in this regard are given below

1. Section benefit can be availed only by Individual and HuF assessee

2. Sale should be of long term residential building or lands appurtenant thereto

3. Income of house property should be chargeable under the head of "income from house property"

4. Capital gain arising from sale of above said property will be saved up to the amount used in to

1. purchase a residential house within year before the date of transfer of old house or within two year after the date of transfer of old house.or

2. construct a house with in three year from date of transfer of old house property.

5. Capital gain is saved up to the amount which is used in to buy /construct new house,if amount used for house purchased/construction is less than the amount of capital gain than the balance amount will be taxed as long term capital gain.

6. If the new house will be sold within three year from the date of purchase or construction as the case may be than while calculating capital gain of the cost of new house will considered as under.

o If cost of new house is less than the capital gain arising from old house:cost of new house will be nil.

o if the cost of new house is more than the capital gain arising from old house :cost of new house will be :total cost of purchase/construction minus capital gain on sale of old asset .

7. If amount of capital gain arising from the sale of old asset is not used as per point 4 before the due date of furnishing of income tax return or furnishing of return which ever is earlier than the balance unused amount should be deposited in designated banks under capital gain account scheme 1988 .

8. if capital gain amount unused has not been deposited under the scheme as per sr no 7 than the amount of capital gain will be taxable in the previous year as long term capital gain it self no matter it is actually used by the assessee for the purpose of sr no 4

9. if the amount deposited in capital gain scheme as per sr no 7 wholly or partly has not been used with in the three year from the date of transfer of old asset and purpose given under sr no 4 than the unused amount will be taxable in the hand of the assessee in the previous year in which three years expires from date of transfer of old asset as long term capital gain.

points emerged from court cases.

Exemption is allowable in full even if house is partly purchased and partly constructed - The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is partly constructed or partly purchased - B.B. Sarkar v. CIT [1981] 132 ITR 150 (Cal.).
When more than one house is purchased - In case the assessee has purchased more than one house/flat within the period prescribed in section 54, it is for the assessee to claim relief against the purchase of any one of the house/flat provided the other conditions mentioned in the section are satisfied - K.C. Kaushik v. P.B. Rane, ITO [1990] 84 CTR (Bom.) 62.
Exemption is allowable even if a share in new property is purchased - When the Act enables an assessee to get exemption from payment of tax in respect of purchase or construction of a residential house, purchase or construction of a portion of the house should also enable the assessee to claim the exemption. It is possible that a person may not be in a position to purchase the wholeresidential house at a time and in the circumstances an assessee might purchase a portion of the house or some interest in the house. Thus, where the assessee sold a house and from the sale proceeds purchased 15 per cent undivided share in a house, property from her husband and her son, and she was earlier residing in that house exemption under section 54 can be allowed - CIT v.Chandanben Maganlal [2000] 245 ITR 182 (Guj.)
Exemption on capital gains could not be refused to the assessee simply on the ground that the construction of the new house had begun before the sale of the old house - CIT v. H.K. Kapoor [1998] 150 CTR (All.) 128
u The date of commencement of the construction of the new house is not material. To get the benefit of section 54, the assessee must have constructed the new house within the prescribed period from the date of sale of the old house - CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571 (Kar.).
Purchase need not necessarily be on ‘cash and carry’ basis - The word ‘purchase’ in section 54 must be interpreted in its ordinary meaning, as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration. There is no stress in the section on ‘cash and carry’. Thus, where the eldest brother in a coparcenary comprising four brothers sold his own house and acquired the common house from his three brothers who executed release deeds for a consideration, there was a ‘purchase’ by the eldest brother of the share of each of the brothers for a price - CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46 (SC).

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PrabhuJ (student) (41 Points)
Replied 16 March 2012

The residential house property sold must consist of buildings or lands appurtenant to the building. The meaning of the term ‘lands appurtenant’ to the building requires elucidation. Whether a small building surrounded by large vacant lands qualifies for deduction u/s.54 on overall basis is the issue requiring consideration. In CIT v. M. Kalpagam, (1997) 227 ITR 733 (Mad.), the following tests were provided for determining whether the land appurtenant to the building must be considered for the purpose of deduction u/s.54 :

(a) If the land and building forms part of an indivisible unit and are enjoyed by the persons occupying the building, then the entire extent of land is treated as appurtenant to the building, and the sale consideration relating to such land is also eligible for deduction u/s.54 upon reinvestment.

(b) If the land and building can be put to use by independent users without causing any detriment to the enjoyment of the building or land by other set of users, then the land cannot be treated as appurtenant to the building.

(c) The persons occupying the building and requirements of vacant land for their use taking into account their social standing, etc. would be eligible for deduction u/s.54, and any surplus land beyond such requirements cannot be treated as land appurtenant to the building. In other words, long-term capital gain from transfer of such lands will not be considered for deduction u/s.54.

(d) If the land appurtenant to the building is put to use for any other purpose, such as commercial or agricultural, then such lands will not qualify for treatment as land appurtenant to the building.

(e) If the owner of the land derives any income and if such income is not chargeable to tax u/s.22, then such land does not qualify to be treated as land appurtenant to the building.

Where the assessee buys more than one flat in the same building for the purpose of accommodating his large-sized family, maintaining a common kitchen and common ration card, it was held that the assessee is eligible for deduction u/s.54 in respect of all such flats so acquired by him (K. G. Vyas v. Seventh ITO, (1986) 16 ITD 195 (Bom-Trib)).

However, in Mrs. Gulshanbanoo R. Mukhi v. Joint CIT, (2002) 83 ITD 649 (Mum-Trib), it was held that the statute unambiguously provides for deduction u/s.54 for one residential house only. Hence, acquisition of more than one residential house by the assessee will not entitle the as-sessee to claim deduction u/s.54 for all such residential houses so acquired by him. The assessee has to claim deduction u/s.54 only in respect of one house and not more than one house.

Finally, it is advisable to purchase/construct only one residential house to get exemption. You may know plot is different from flat (residential apartment). To get exemption land and building must be an indivisible unit. Purchase of separate land is not come here.

ABHISHEK MEHTA (Student CMA) (22 Points)
Replied 03 March 2014

Originally posted by :
	I have a land whose cost is 50000 in 84.i have given the land to a builder who construct a building on it whose current value is 5000000.out of which i have got 2 flats of that building.How capital gain will be calculated & can we claim any exemption of that. Please can you adivse Thanks. Abhishek

ABHISHEK MEHTA (Student CMA) (22 Points)
Replied 04 March 2014

I have a land whose cost is 50000 in 84.i have given the land to a builder who construct a building on it whose current value is 5000000.out of which i have got 2 flats of that building.How capital gain will be calculated & can we claim any exemption of that.

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barkat ali (auditors) (32 Points)
Replied 13 March 2014

hi,

ONE OF MY CLIENT HAS SOLD HIS PROPERTY(LTCG) AND HAS INVESTED THE AMOUNT IN CONSTRUCTION OF FLAT IN HIS MOTHER PROPERTY & HAS CLAIMED THE LTCG-EXEMPTION IN FY -2012-13, DUE TO HIGH STAMP DUTY HE WANTS TO REGISTERED THE GIFT DEED FROM MOTHER INSTEAD OF SALE DEED, WHETHER THE EXEMPTIONS WILL BE ALLOWED OR DISALLOWED