Neutralize capital gain tax

Others 297 views 3 replies

Utsav Jayswal

9 Points Joined February 2016

Dear Experts,

My father has got some ancestoral property, and he is planning to sell it. The property cost comes to near by 1Cr or little above. So, i was thinking of neglecting the Capital gain's what will be imposed by the income tax, in that process we are planning to do the following things:-

1) In my native place, we are planning to construct a house by purchasing a residential plot (as per my knowledge we need to construct a house with-in 3 years to neutralize the capital gain. One doubt here it is must to be completed in 3 yrs or it should only be started). Please note, we already have a house in my native. So, can we construct one more house?

2) I am living in bangalore, so my father has plan to buy a house in bangalore by his name to fully utilize the funds which is coming after selling the ancestoral property.

Please advise

Thanks,
Utsav

Replies (3)

CA GOKUL RAJ R

Chartered Accountant

151 Points Joined March 2015

Dear Utsav,

I hope the ancestoral property is house property is it?

If yes, your father can invest the capital gain portion alone in to a new house property to get the capital gain exemption. provided he should have only one house property except the property which is going to be sold out at the time of transaction. if not, the entire sale consideration in guideline value is supposed to be invested to get the full exemption of capital gain.

However, as you said the sale consideration exceeds Rs. 50 lakhs. so the buyer shall deduct tax at the rate of 1 % of the total value of consideration before registration of the property and he will remit the same to Central Government in your father's PAN. it cant be denied.

For your another question that the new house property should be bought within 3 years from the date of transaction and the amount to be invested in Capital Gain account within 6 months from date of transaction or due date of return filing whichever is earlier.

Also it is to be noted that the sale consideration should be received in account payee cheque or Demand draft if it exceeds Rs.20000/-. otherwise 100% penalty shall be levied.

I hope that the above clarifies your doubt. for any queries, feel free to contact.

Thanks

CA Gokul Raj

Utsav Jayswal

9 Points Joined February 2016

Thanks Gokul for the quick response.

But, one correction that property is not the house property - it's a piece of land (and there are few of no's not 1).

For your below response line

"if not, the entire sale consideration in guideline value is supposed to be invested to get the full exemption of capital gain."

Is this mean, that if property sold of 1cr, then the complete 1 cr should be invested in another residential property (buying a land plus construction).

Can we have multiple residential properties across different cities?

Like i already have one house in my native and i am going to construct another one by the motive of this exemption? is it possible.

Even, i had one property in bangalore by again my father's name and we are planning to buy one more (for my parents, when they became old they will come to bangalore)

Appreciate your response.

Thanks,

Utsav

CA GOKUL RAJ R

Chartered Accountant

151 Points Joined March 2015

Yes. the complete sale consideration is to be invested in a new house property to claim full exemption of capital gain tax.

The assessee should have only one house property in his name at the time of transaction and the investment in a new house property should only one residential house property anywhere in India. You cannot claim exemption if the amount is invested in more than one residential house property.

or another option of claiming exemption u/s 54EC that is you can invest upto Rs. 50 lacs in a year in the bond of RECL and NHAI. the lock in period is 3 years. you can get return around 8% per annum. only the interest income from such bond shall be taxable in the subsequent years. the balance amount can be invested in a new house property. you can claim both the exemptions.

Feel free to contac us cagokulrajtry @ gmail.com

Thanks