Captal gains tax:4 flats instead of 1

Tax queries 712 views 3 replies

Pooja Khanna

Proprietor

24 Points Joined August 2012

I have sold a commercial property recently in Mumbai in May 2012 and Capital Gains is 1 crore 35 lakhs.To save capital gains tax I need to buy another residential property till 31st July 2013.

I can not find any big property worth Rs.1 crore 35 lakhs of my choice as all of them seem overpriced in today’s crazy market.So I want to buy 4 small residential flats in Virar,Panvel etc where properties are cheap and prices can only appreciate in future.These flats will be purely for investment.

My background: I have a small business and a residential property in Mumbai in my single name as of now.I do not have any relative in whose name I can buy various flats.All properties which I will be purchasing will also be in my single name.

So the question is,in order to save capital gains tax, instead of 1 residential flat of 1 crore 35 lakhs, is it ok if I buy 4 smalls residential flats of combined value of Rs.1 crore 35 lakhs.Will then the total amount of Rs.1 crore 35 lakhs be exempt from Capital gains tax?

I know that I can buy bonds of NHAI of 50 lakhs or open a capital gains account with bank.But I prefer to buy property and invest money asap if I get a deal of my choice at sensible price.

I also understand that if I buy 4 small flats then under the heading of “Income from other sources” I will have to pay rental income of other flats even if I do not actually rent them out.Is there any way to avoid this rental income like taking loans for the extra 4 flats which I am buying,etc?

Thanks in advance.

With Regards,

Pooja

Replies (3)

Vishwas V Rao

Chartered Accountant

239 Points Joined May 2009

Since you have sold a commercial property, you will not be able to claim exemption if you purchase 4 residential house property.

The options you have are:

1. Purchase 1 single residential house property. (Certain conditions apply - like restriction on selling the new property, restriction on purchase of another property, etc)

2. If you are looking out for a big property, you can deposit this 1.35 crores in a Capital gain account scheme opened for this purpose.

3. Buy bonds - however restricted to 50 lakhs

4. Pay tax

Member

Management

325 Points Joined February 2010

Agree with Vishwas Rao. In any case, there are contrary decisions about claiming exemption for multiple purchase of flats. Your best bet would be to claim deduction under section 54F by purchasing one house property, subject to the conditions found in that Section. Invest Rs.50 lacs in REC bonds and pay tax on the rest. Don't forget to deposit the proceeds in CG A/c Scheme in banks (No FDs, remember) in case your acquisition is going to be after the due date for filing of Return of Income.

Arvind Khemka

practicing CA

210 Points Joined February 2009

since u have sold a comercial property you will not be allowed exemption u/s 54, instead you can claim exemption u/s 54F but in that case to claim exemption of Rs 1 cr 35 lacs u need 2 buy 1 residential flat worth the sale price of the commercial property,you csnnot buy more thn 1 residential flat for next 3 yrs

2nd option u have z 2 claim exemption u/s 54 EC upto Rs 50 lacs in current year and Rs 50 lacs in next year bfr filing ur return