L t c g

Swapnil Jain (Finance - FP&A) (564 Points)
Replied 21 October 2011

As per Sec 54F “Any long-term capital gain, arising to an individual or HUF, from the transfer of any capital asset, other than residential house property, shall be exempt in full, if the entire net sales consideration is invested in purchase of one residential house within one year before or 2 years after the date of transfer of such an asset or in the construction of one residential house within 3 years after the date of such transfer.”

MY VIEW:

54F says the construction should get COMPLETED within 3 years!!!

The date of construction is irrelevant. Construction may be commenced even before the transfer

54F is the best possible way to avoid LTCG!!

plz wait for some expert comments on the same!!!

Srihari Manipatruni (student) (147 Points)
Replied 21 October 2011

sec 54F states purchase of one residential house within one year before or 2 years after the date of transfer of such an asset or in the construction of one residential house within 3 years AFTER the date of such transfer.

So in my view exemption can be claimed only if construction is started after the date of transfer....

corrections if any , are invited...

Swapnil Jain (Finance - FP&A) (564 Points)
Replied 21 October 2011

Originally posted by : Srihari Manipatruni
	sec 54F states purchase of one residential house within one year before or 2 years after the date of transfer of such an asset or in the construction of one residential house within 3 years AFTER the date of such transfer. So in my view exemption can be claimed only if construction is started after the date of transfer.... corrections if any , are invited...

here the word "AFTER" does not mean 'construction should start after transfer of capital asset'. The word "AFTER" mentions that 'construction should get completed after transfer of capital asset (anytime before 3 years)'

Construction can commence before the date of transfer, but completion of construction should be only after the date of transfer. Therefore, expenditure incurred for construction before the date of transfer of the asset are eligible for exemption under Section 54F so long as the construction is completed within the stipulated period.

Again would mention that it's my view!! Comments and suggestions are most welcomed!!

1 Like

Fazil Ahmad (Article Assistant) (80 Points)
Replied 23 October 2011

You can avail exemption u/s 54F!

Ameya Makarand Lonkar (CA Final Student) (56 Points)
Replied 25 October 2011

I think, date of commencement of construction is irrelevant. However, the construction must complete within 3 years from the date of transfer of original asset.

CA Mangesh Chitale (B. Com. A.C.A. DISA (ICAI) DIRM (ICAI)) (245 Points)
Replied 25 October 2011

Completion of construction of house property should be within 3 yrs from the date of transfer. Date of commencement of construction is not relevent. so you can avail 54F. Otherwise 54EC also can be availed.

Sheena Maheshwari (ARTICLESHIP) (240 Points)
Replied 20 December 2011

54F can be claimed provided construction is complete within 3 yrs from the date of transfer.

Z ( ) (2960 Points)
Replied 20 December 2011

"I purchased another site at Hyderabad in the year 2010, for construction of residential house (earlier we are not in possession of any residential house), for which we applied for plan approval in the month of Dec’2010 and the construction started in the month of Jan’ 2011, work is under progress. It will take another one and half year (approx.) for completion of the house.

If we utilize the entire sale proceeds of Chennai site for construction of residential house (which is under progress) at Hyderabad site, are we eligible for LTCG exemption under Sec. 54 F of Income Tax Act, 1961."

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.

Contra (old case)

Construction cannot precede sale of old house - To claim exemption under section 54, the construction of the new house should be within two years after the transfer of the existing house. The exemption is not available where the new construction is made before the transfer or sale of the existing house - Smt. Shantaben P. Gandhi v. CIT [1981] 129 ITR 218 (Guj.).

If you do not want to go with the above case laws

You mentioned you purchased site, i.e land . According to sec 54 and 54F investment has to be made in residential house property and sec 22 house property includes building(s) and land(s) appurtenant to

So if the land qualify of being appurtenant to, then the exemption can be availed.

If the money is invested in construction then such land is qualified for exemption (time limit for purchase of PROPERTY is one year before or 2 year after th date of transfer) . But do comply with the provisions.

CITE: ACIT vs Narendra Mohan Uniyal (2009) 34 SOT 152(Del)

The expense on construction should also be allowed

INVESTMENT is to be made in specified time limit and COMPLETION of construction does not matter for this following case laws may be reffered

B.B. Sarkar v. CIT [1981] 132 ITR 150 (Cal.)

Satish Chandra Gupta v. Assessing Officer [1995] 54 ITD 508

Commissioner of Income-tax v. R.L. Sood