LTCG

Tax queries 427 views 4 replies

Vinay Katiyar

82 Points Joined October 2014

1. I bought a flat in Aug 2007 ( Sale Deed Executed ), I sold it in Oct 2014 ( Sale Deed executed ). I have Long term capital loss of 87000/- after considering cost of inflation index for both the fiscal years.

2. I bought a new property in Nov 2014, which is under construction supposed to be completed in Jan 2017 as per the construction agreement dated Nov 2014. I still need to make subsequent payments as i have only paid 20% till now.

3. In next fiscal year i.e. May 2015, i sold another property of mine.

Date of Buying:- Oct 2010 ( Sale & Construction agreement ) & Sale deed was executed in April 2011. Date of Selling :- May 2015 ( Sale Deed Executed )

In that i will have long term capital gain of around 1250000/- after indexation for current fiscal is published.

I have following queries:-

1. Can i set off losses on fiscal year 2014-15 with LTCG from fiscal year 2015-16 and make my final LTCG as 3,80,000/- (12,50000 - 870,000) using carry forward loss

2. Can i re-invest this 380,000 as section 54 exemptions in this under construction property as i bought it before selling my 2nd property? I am worried as i bought it before the sell of 2nd property will AO consider it right for investment. It is under construction now and will be completed in Jan 2017

3. Also as i sold my 2nd property after 3 years but before 5 years. Hence i will have to reverse the exemption claimed as part of 80C for principle repayment. Though i showed the principle repayment to claim 80C exemption to my employer, but i have also made additional investment in LIC/PPF which are eligible under 80C but not showed as 80C as the limit of 1 lac was reached. Now if i need to reverse the 80C exemption, can i show the other investments which i made but did not show towards 80C exemption?

4. For LTCG calculation of 2nd property, which date should i use for date of acquisition of property, Sale agreement and construction agreement date or Sale deed Date. I dont have any allotment letter from builder, i was only given sale and construction agreement first in Oct 2010 and later we registered the property in April 2011 and made sale deed.

Replies (4)

CA Salman Ansari

Salman Ansari & Assoc.

247 Points Joined June 2015

I have only three answers.

1. Yes, you can carry forward the LTCL for 8 years to be set -off against LTCG.

2. If I understand your question correctly, you want to use the capital gain to pay for the purchase you made even before the sale happened. I dont think that is permissible, since even though nexus is not a necessity in section 54, event of purchase preceding the capital gain negates the words 'utilization of capital gain'. Investment for partial ownership of house property has been permitted before, but your case is different for the reasons that amount of 3.8 Lakh is not resulting in acquisition of a separate property.

4. Date of Registration/Sale Deed.

Hope this was of help.

Ansari Salman

Vinay Katiyar

82 Points Joined October 2014

Thank you for your reply.

For the answer for 2nd question, just want to let you know that i have only made the booking and made payment for 2 installement prior to sale of my property, However still i need to pay for several more installment and those payment will be done as per the demand letter being raised by the builder according the progrees in construction. Hence i still have chance to make several more payments for this under construction property. Can in this case i invest the capital gain of 380,000/- as the subsequent payment will still be made. Registration of this property will be done in 2 years from now. Please let me know will your answer change now

Thank you,

Ankush

CA Salman Ansari

Salman Ansari & Assoc.

247 Points Joined June 2015

Hello Ankush,

I'll revise my position. Since the provision of section 54 reads ''one residential house purchased within 1 year before or 2 years after the date of transfer", and both the dates (agreement and completion) of your property (Nov 14 and Jan 17) fall within that span of 3 years, hence it is safe to say that it can be claimed, subject to following :

For the purpose of under-construction flats, date of the letter of allotment is normally considered to be the date of purchase, and hence you have to make sure you get it at the earliest possible, if you haven't already. A letter of allotment or sale deed acquired after two years from May 2015 is adverse to your claim.

One more thing that needs mentioning, if you ever read section 54, is that the provisions of 54 allow 'construction of a house property' within 3 years from the date of transfer, which is not applicable in case of purchase of under-construction flats i.e. Underconstruction flats are treated as purchase, and not construction as the work is not effected by the assessee.

Hope this helped.

Ansari Salman