TAX planning please share ur views...

Tax planning 973 views 7 replies

CA Anshu Agarwal

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1832 Points Joined March 2009

Mr. A acquired a shop as on 01-01-1991 for Rs.60000 in his name. Mr. A was doing business in that shop and was claiming depreciation on that shop.

Now he is planning to sell his shop for Rs.25 lacs in the month of August -2010. He is planning to purchase a residential house for Rs.22 lacs. Expenditure expected to acquire that are Rs.3 lacs. He want to get register the title deed of residential house in his wife in order to avail benefit of lower stamp duty in case of ladies. What may be tax planning in this case.

In my opinion the tax planning in this case may be as follow:-

Section 54F provides exemption for capital gain earned on transfer of a Long Term Capital asset other than residential house, if a residential house

Ø is purchased within one year before or two years after sale of Long term asset or

Ø is constructed within three year after sale of long term asset.

In this case the shop is long term capital asset as assessee hold the asset for more than 3 years. There shall be Short term capital gain on transfer of the shop as per section 50. But exemption u/s 54F may be allowed as it provides for gain on transfer of Long Term Capital Asset not Long term capital Gain.

So STCG = (2500000 – 19874 = 2480126), and exemption u/s 54F = Rs.2480126 (as whole sale consideration is invested)

However, in case he sales the shop and purchase the residential house in his wife name, there may be possibility not allowing exemption u/s 54F.

Another way, he may transfer the shop to his wife by way of gift. In this case the shop shall be long term capital asset and there shall be long term capital gain on this shop as not covered by section 50. Now She invest the sale consideration into a residential house. In this way she may avail exemption u/s 54F. Such capital gain shall be clubbed into the income of Mr. A as per section 64.

So LTCG

Sale consideration = Rs.2500000

Indexed cost of asset = 19874

LTCG = 2480126.00

Exemption u/s 54F = 2480126.00

Total capital gain = Nil

In this way there shall be no taxability on these transactions. Moreover, the major portion of the new residential house is purchased out of income on the asset transferred to her by his husband. So the rental income in new house or capital gain on transfer of new house shall not be clubbed in the income of Mr. A.

Replies (7)

CA Nikhil Bhansali

Service

128 Points Joined September 2009

Dear Anshu,

I appreaciate the way are planning.

In first Case Mr.A will not get exemption if it is purchased in his wife name. Because flat should be purchased by assessee. Relevant extract of 54F is as below :

"the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed"

hence, in order to claim flat should be purchased by assessee himself.

In second case Mr. A cannot claim exemption u/s 54F, Simply because there is no provision for clubbing of Expemption.

Rajagopalakrishnan R

PARTNER

1422 Points Joined May 2010

I disagree with Mr Bhansali. In the second method there may not be any tax liability in the hands of A. It has been held by many legal fora that the quantum of income laible to be clubbed is the income determined under the provisions of the act. Therefore Mrs. A can compute the capital gain and claim exemption u/s 54F which would leave the income under Capital gains as NIL. Therefore there is no effect for clubbing NIL income

U S Sharma

glidor@gmail.com

21063 Points Joined January 2010

‘Purchase’ does not mean that the new house must be registered in assessee’s name - For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property purchased. The word ‘purchase’ occurring in section 54(1) has to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Therefore, for the purpose of applicability of section 54, registration of the document is not imperative - Balraj v. CIT [2002] 123 Taxman 290/254 ITR 22 (Delhi).

https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2006ITAct/casesec54.htm

Jinesh Aggarwal

Service Man

45 Points Joined June 2010

Dear Nikhil & Anshu,

In first Case I agree that Mr.A will not get exemption if it is purchased in his wife name. Because flat should be purchased by assessee.

And also in second method Mr. A is not liable to pay any tax on said property under Income Tax Act but my dear I'll inform you that Mrs. A will be liable for paying Income tax under section 56 (2) (vi). As per this section " If a individual or HUF received Any Gift then receiver has to pay tax for receiving any gift valued at Rs. 50,000 and more. The ‘any gift’ clause means that not only cash but all gifts of any value.