Sec 54EC LTCG Exemption

Tax queries 798 views 3 replies

Kunal

Salaried

25 Points Joined February 2010

I have a query with regards to exemption of Long Term Capital Gains tax. Suppose a person 'X' has sold some residential plot in the month of say, June 2009. The profit (after indexation) from the sale is Rs. 15 lakhs. Mr. X plans to purchase a residential flat along with another applicant (Mr. Y) on a 50:50 ownership basis. Say the total cost of the flat is Rs. 30 lakhs. Mr Y would be taking a loan from a bank for his part of the commitment.

My queries are related to Mr. X and his liabilities towards the tax arising from LTCG:

1. Is it necessary for Mr. X to invest the entire amount of 15 lakhs as downpayment for the flat to avoid any tax liability?

2. If Mr. X takes a loan of 10 lakhs against his commitment and put in 5 lakhs from the above funds initially and forecloses the loan before June 2010, then would the tax liability change?

Replies (3)

Amir

Learner

4016 Points Joined December 2009

Dear Kunal,

The heading/title of ur query speaks about 54EC, in this section exemption is available on investment in notified Bonds upto Rs. 50 Lacs within 6 months from the date of sale of an asset (Plot in present case)

But ur queries are related to buying a new house which is covered by Sec 54F - It is not necesaary to pay the entire amount on down payment, only condition is House is to be purchased within 2 years from the date of sale.

The amount which cannot be utilized till the time of due date of filing return of income for the FY in which the plot is sold, is to be deposited in a Capital Gain A/c scheme with the Bank..& Thereafter that amount is to be utilized for buying a new house, any amount which cannot be utlized from the above Capital Gain account shall be taxable on the expiry of 2 years....

Therefore my friend Option of loan is neither acceptable to income tax nor it is advisable further when one has the money with him why would he borrow & pay interest..............

C.Balaji

Learner

1867 Points Joined October 2008

Dear Kunal....

Sec 54EC talks about Transfer of LTCA and investment in Specified Assets within a period of six months from th date of transfer....

The case which you have given talks about 54F - i.e. Tansfer of LTCA other than Res. house and Pur/const of Res. house...X sells Plot and pur Res, House....

The CG of 15 lacs can be utilised for Pur of Res. house within 2 yrs / const. 3 yrs...Moreover 54F restricts that the assessee should not own more than one Res. house at the time of transfer....

The case you mentioned X can go for 54EC and 54F....

X can invest the CG - 54EC - specified bonds wihin six months...The amount not invested in 54EC should be invested in CG scheme A/C within the due date of filing return...

The amount deposited in the CG scheme should be utilised within 2yrs for pur of Res. house / 3 yrs for construction...if not done the amount unutilised will be taxed.....