Capital gain exemption under 54/54f selling two property

Tax queries 1451 views 3 replies

Karunakaran

Technical Lead

38 Points Joined February 2012

I had two residential land property out of which I have sold one within last one year and used the full sale value to purchase a residential property from a builder which is of the nature, land + construction. The value of the residential property is double and I had taken a home loan to proceed with purchase / construction from the builder which will be completed/handedover over in couple of months time from now.

Now to reduce / come out of the loan burden, I would like to sell the other residential land property also and pay the loan amount. I have two clarifications in this regard that would help take a decision,

1) Can two residential land property sold be invested in one residential house we have bought and exemption claimed under Capital Gain Act 54 / 54 F ?

2) if yes for above, in our case (i.e, buying a land + construction from a builder), Can I sell the second property later (even after builder handover in couple of months from now), say within 6 months or so and claim the exemption ? i.e,.till what timeframe can we sell the second property and claim ?

(additional note: we have one another residential home bought/constructed 3+ yrs before, will there be any implications in this regard ?)

Thanks in advance for the help / clarification.

Replies (3)

Mihir

Wealth Manager

5293 Points Joined December 2008

You cannot repay home loan from the proceeds of selling another property. It is not allowed as deduction u/s 54 or any other section of IT Act.

Karunakaran

Technical Lead

38 Points Joined February 2012

As read in IT act 54F

"....within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date 32a[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"

in the above, for one to purchase the residential house one year before the transfer, there is very well a probability, one to have borrowed money (either from bank or some other means) and then use the proceedings of the Sale to close/settle it. As read/understood somewhere, the IT dept / authority will ultimately look at the objective to fulfil which the IT acts are framed.

In my case assuming I had not taken a bank loan, would the points 1 and 2 mentioned above be valid for claiming exemption for the second property, in 54F ?

Karunakaran

Technical Lead

38 Points Joined February 2012

As my first post was more elaborate and have not focussed on the actual query which would've led us to discuss on a different point / direction, I would like to post my query specific to the point that I would like to understand from the Capital gain Tax perspective,

1) Can two separate residential land property sold separately at different date/time be invested in one residential house and exemption claimed under Capital Gain exemption 54F for both ?

2) in IT section 54F it is mentioned as "....within a period of one year before or [two years] after the date on which the transfer took place purchased", here in the case of a residential house bought from a builder being a land + construction what date would mark the date of purchase, is it the booking date or land registration date or the date which the builder completes and gives the possession of the house or some other date ?

Can Mihir or some other Finance / Tax experts help me to understand these points better as I could not interpret an answer for these from the descripttion in these Tax Sections online ?