House property purchase -- which date is relevant ?

Abhinav (student) (564 Points)
Replied 31 August 2012

I think date of agreement

Dheeraj (Learner) (1100 Points)
Replied 31 August 2012

date of purchase differ case to case.

And payment made on or after 27.04.2014 but before filing the income tax return is eligibe for deduction from ₹17,00,00,000 less cost of acquisition and cost of improvement (current value) = net gain

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 31 August 2012

Mr X had another house property which he sold on 27.4.2014 for a sale price of Rs 17,00,00,000.

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mode of disbursement of this amount ?

if this amount is paid towards property acquisition irrespective of agreement and completion dates, but within 1 year of sale, ( rem not to be used in loan repayment) then you can avail the benefit.

Abhi (Manager) (76 Points)
Replied 31 August 2012

Originally posted by : Abhinav
	I think date of agreement

hmmm.. is there some case law etc..

any way this can be confirmed ?

Abhi (Manager) (76 Points)
Replied 31 August 2012

Originally posted by : U S Sharma
	Mr X had another house property which he sold on 27.4.2014 for a sale price of Rs 17,00,00,000. ================================= mode of disbursement of this amount ? if this amount is paid towards property acquisition irrespective of agreement and completion dates, but within 1 year of sale, ( rem not to be used in loan repayment) then you can avail the benefit.

Mode of disbursement of the sale proceeds of old house is cheque..

The agreement and completion dates are important.. since if the registration date is taken as the date of purchase then property can be selected and agreement to purchase can be planned even before the sale of other house.. then we only need to ensure that the property is registered / completed within 2 yrs of other HP sale.. If agreement date is taken as date of purchase of new HP, then in the given example Mr X will not be eligible for exemption u/s 54 / 54F ..

Hence, I wanted clarity on which date is taken for date of purchase..

Abhi (Manager) (76 Points)
Replied 31 August 2012

Originally posted by : Dheeraj
	date of purchase differ case to case. And payment made on or after 27.04.2014 but before filing the income tax return is eligibe for deduction from ₹17,00,00,000 less cost of acquisition and cost of improvement (current value) = net gain

Kindly clarify the statement in bold above ..

Do you mean that even if the HP is purchased long back ( 2/3 yrs before sale of old HP on 27.4.14), then also if I use the sale proceeds / net gain of the old HP for paying the new HP purchased, I will get the benefit u/s 54 / 54F ?

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 31 August 2012

paid to Y on or before 15-09-2012 30% of flat value

paid to Y by Bank from 01-12-12 to 10-12-14- 70% of flat value

old flat sold on 27-04-14

so from the old flat sale proceeds, no payment is made towards acquire of new house property , whatsoever is the time period prescribed, as when the old property is sold, bank was in action of payment and buyer has already meet his obligations before planning of such sale.

the spirit of the exemption is to provide relief to assessee who usse the amount received towards purchase of new residencial property,

Abhi (Manager) (76 Points)
Replied 31 August 2012

Originally posted by : U S Sharma
	paid to Y on or before 15-09-2012 30% of flat value paid to Y by Bank from 01-12-12 to 10-12-14- 70% of flat value old flat sold on 27-04-14 so from the old flat sale proceeds, no payment is made towards acquire of new house property , whatsoever is the time period prescribed, as when the old property is sold, bank was in action of payment and buyer has already meet his obligations before planning of such sale. the spirit of the exemption is to provide relief to assessee who usse the amount received towards purchase of new residencial property,

Thanks for the reply USS..

I wanted to know whats does the IT rule say on this ? Whats the date they consider as date of purchase.. while spirit is ok, we all are well aware that mostly the rule of law is followed in letter if not in spirit.

Am sure there would be some examples, case studies on this ..since even the spirit needs to be backed by some existing law.. else usually that would be always used for benefit by the assessee and there will be problems later during assessement..

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 31 August 2012

Sections 54 and 54F of the Income-tax Act, 1961, provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer.

https://www.incometaxindiapr.gov.in/incometaxindiacr/contents/CBDTFiles/Circulars/CBDTLaws/HTMLFiles/sec54_672_93.htm

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Here the amount has to be used, within the limitation of timeframe prescribed,

Mere book entry within the time prescribed without using the funds is unwanted.

the proceeds of old properperty will qualify only when its long term, in the query the Date of acquisition of old property is not mentioned,

Abhi (Manager) (76 Points)
Replied 31 August 2012

Originally posted by : U S Sharma
	Sections 54 and 54F of the Income-tax Act, 1961, provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer. https://www.incometaxindiapr.gov.in/incometaxindiacr/contents/CBDTFiles/Circulars/CBDTLaws/HTMLFiles/sec54_672_93.htm =========================================================================== Here the amount has to be used, within the limitation of timeframe prescribed, Mere book entry within the time prescribed without using the funds is unwanted. the proceeds of old properperty will qualify only when its long term, in the query the Date of acquisition of old property is not mentioned,

Old HP sold is long term.

Invested in a residential house is stated in the provision..and we can say that we have made a prepayment of an housing loan we took as a bridge loan to fund the pruchase in the interim.. If the sale proceeds are used to instantly pre-pay the housing loan for the full sale proceeds, is it not being invested in the new hp ?

Can we not say that we were able to sell our house only when the new house is completed since we need to stay somewhere !! and for the interim we took a housing loan to fund the new purchase AND we prove that we used the full sale proceeds to prepay the housing loan / other loan we took..

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 31 August 2012

you can ask the buyer of old property to pay some considertable amount in advance in advance to meet up the criteria, and keep something pending of builder which can be meet up towards completion,

bridge loans and our accounting games are not confirming the meaning of explanation of 54/54F, the time of Pre 1 year, post 2 year and construction 3 year is only to ease the procedure that if somebody booked the property 1 year back but not paid fully, sold the old property and used the funds to pay for new property, then its admitted, post sale restrictions are there so that the assesee can not deploy the funds elsewhere other than new house property within the stipulated time limit.

in my very 1st reply i cleared that LTCG can not be used for any type of loan payment taken for property or otherwise, so question of bridge loan and other ways are not admissible.

arrange the procedure so that the amount recd from sale of old property goes to builder within shortest possible time, this is the only way to save the situation.

Abhi (Manager) (76 Points)
Replied 31 August 2012

Originally posted by : U S Sharma
	you can ask the buyer of old property to pay some considertable amount in advance in advance to meet up the criteria, and keep something pending of builder which can be meet up towards completion, bridge loans and our accounting games are not confirming the meaning of explanation of 54/54F, the time of Pre 1 year, post 2 year and construction 3 year is only to ease the procedure that if somebody booked the property 1 year back but not paid fully, sold the old property and used the funds to pay for new property, then its admitted, post sale restrictions are there so that the assesee can not deploy the funds elsewhere other than new house property within the stipulated time limit. in my very 1st reply i cleared that LTCG can not be used for any type of loan payment taken for property or otherwise, so question of bridge loan and other ways are not admissible. arrange the procedure so that the amount recd from sale of old property goes to builder within shortest possible time, this is the only way to save the situation.

ok..

so taking my example.. lets ignore the home loan taken and assume no home loan has been taken..

Agreement to purchase property under construction -- May 2012.. Say price is Rs 75 lakhs

Part payments made till July 2014 from own funds - Rs 20 lakhs

Long term CG earned in June 2014 for total consideration of Rs 35L earning LTCG of Rs 15L.

House fully paid ( with own funds + loan ) in Nov 2014 and registered in Dec 2014.

Whole sale proceeds used to paid for new house property and then home loan for balance Rs 20Lakhs taken..

Note agreement to purchase May 2012, LTCG in June 2014..

Now, in this case will exemption u/s 54 / 54F be eligible.. no loan taken..

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 31 August 2012

just mark the 35 Lacs which is sale consideration recd from sale of old property, and be ensure that this is fully utilized towards payment of acquiring new property. ( to be sold in june 2014)

this fund is to be paid to the builder / seller of new property within 31/07/2015( due date of filing the return for the period) or to be deposited in capital gain account and to be used later for payment for the same.

as you are getting the deed of conveyence regd in your favor in dec 2014, which is well within 2 year for availing the benefit or 2 year ( applicable if LTCG account is opened and fund used from there), so the benefit is available to your hand.

balance 40 lacs you are availing from loan / self finance or whatsoever means does not intervein the definition of the exemption, but the only condition that the sale proceeds are directly used in acquiring the new property, without diverting it to anywhere else, ( except LTCG account, in case the delay is beyond the return filing date of the year in which the sale takes place)

The case would be selected for regular assessment and if found within assessment that the funds so received on the date of sell of old property ( or dates prior lr later to the sale deed) are routed otherwise than payment towards acquire of new property( direct nexus between the buyer is seller is mandatory for the transaction) then the same would be disallowed by the assessing officer.

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CA Harshal Vora (Author of ISCA) (160 Points)
Replied 31 August 2012

Hy Abhi.,

To claim exemption u/s 54, purchase of residential house, copuled with possession is a prcondition, registration of document is not necessary. Plz refer: Balraj v/s CIT, [2002] 254 ITR 22 (Del) case law.

So, as per me date of final registration should be taken and so exemption can be claimed because property is purchased within 1 year from the date of sale.

In your case for 54F provision, you can also refer Commissioner of Income Tax v/s Ajitsingh Khajanchi [2008] 297 ITR 95 (MP) 25.04.07

Regards,

Harshal Vora

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