Reinvestment of long term capital gain

726 views 2 replies

T Raveendran

Head Finance & Accounts

28 Points Posted on 30 May 2012

I would like to get a clarification on the following querry.

I had sold a residential property during Dec 2011 and the LTCG computation comes to about Rs.13 lacs. I am reinvesting this amount on a new residential propery (second one, as I am already having one). For this I have already purchased a plot for Rs. 12 lacs. However, the construction will start only from Sep 12 after the monsoon. Therefore, is it OK if I invest the balance amount of Rs. 1 lac (LTCG 13 lacs - Plot purchased 12 lacs) in Capital Gains Account with a Bank? I am not sure that payment for plot, where construction of house is still not started will be treated as reinvesement. (If this is not accepted, I will have to deposit entire 13 lacs to Capital Gains Account).

Please clarify, preferably with some case law reference.

Raveendran

t.raveendran @ sanyoindia.com

Replies (2)

PRITAM JAIN, CA , CS

Practising CA CS

398 Points Posted on 30 May 2012

Hello Sir,

Couldn't find any case law matching ur case....

But according to me investing in a plot initially and with the further intention to construct residential house property is allowable u/s54 of the act.

Care should be taken that construction should be completed before Dec 2014 (i.e. within 3years from the date of Capital Gain)

One more interesting thing...

It has been clearly stated in the act that construction should be completed within 3years....

So it is irrelevent that when construction was started....

If it is possible to stretch the period of sale i.e. instead of Dec 2011 to Mar 2012 then ur cut off date of completion of construction shall be Mar 2015...

Regards

Giridhar S Karandikar

Team Lead

7558 Points Posted on 30 May 2012

Mr Raveendran, purchase of plot wud be treated as an eligible investment u/s 54 for claiming exemption, provided that the construction is comeplted within the stipulated time. i.e.3yrs from the date of trasnfer.

pleaes refer the below link for more clarification:

https://taxworry.com/can-capital-gains-exemption-us-54f-or-54-be-claimed-for-buying-land-also/