CA SWETA (Partner) (61 Points)
20 July 2010A person transferred a land to builder to contruct flats and in return got 20 flats.Now that person sold all 20 flats to others persons.
Q1. is transfer of land into flat amounts to transfer? if yes how Capital gain will be calaculated?
Q2. What will be tha tax treatment when those 20 flts were again sold ?
Q3. How capital gain can be saved?
Puneet Mantri
(CA Final student)
(534 Points)
Replied 20 July 2010
C.Balaji
(Learner)
(1867 Points)
Replied 20 July 2010
Mr.Puneet...
Are u sure??? Can he claim exemption both u/s 54 and 54F??? Please calrify me.....
dear sweta
u are liable to pay tax on capital gain twice.both situations are covered under transfer hance liable to capital gain.
@ dear bala ji
a person can claim exemption in two sections by investment according to sections.but in this case u are right as he can not invest in both sections.i think friend puneet submitted it by mistake.
regards
tarun rustagi
CA SWETA
(Partner)
(61 Points)
Replied 22 July 2010
Puneet Mantri
(CA Final student)
(534 Points)
Replied 26 July 2010
CA B Anand
(CHARTERED ACCOUNTANT)
(198 Points)
Replied 26 July 2010
Friends,
To be more clear, the land transferred must not be a rural agricultural land. Then only it will atrract capital gains, or else it would get exempted by sec. 10 (38).
and the capital gain arises to the land transferor because, it is a transfer as per the provisions of transfer of property act.
" The property must be sold or there must be an agreement to sell
The consideration is paid or agreed to be paid. and
The possession of the property is taken by the transferre"
Regarding the consideration, I think The market value of the flat alloted to him 'll be taken . and in the given quest there is nothing mentioned regarding payment made to the builder ? Think he 'll be left with some other flats.....
shyam sundar
(Article Assisstant)
(183 Points)
Replied 26 July 2010
when the landowner goes into JV with the Construction company, the land owner transfers his entire land and gets back few flats as the consideration for selling the land, which is just like exchange.. an exchange is an transfer.
so in this instance capital gain arises..
when the holding period of the land is more than 3 years then it will be taxed as long term capital gain
when you sell the flat then it automatically becomes a transfer.
if the holding period of the flat is less than three years its an short term capital gain.
Manoj BG
(Tax Professional and in Service)
(1795 Points)
Replied 26 July 2010
Dear All,
Exchange of land for 20 flats would be amounted to transfer as per sec 2(47).
Capital Gain attracted twice, one at the time of exchange of land for 20 flats and second at the time of sale of 20 flats for cash or other valuable consideration.
For the purpose of Full value of consideration at the time of exchange of land for 20 flats, fair value of such 20 flats taken together would be taken as the full value of consideration. This fair value u can obtain through municipal valuation rates in force for the area where those flats were located. Cost of acquisition is the original cost of land if purchase before 01.04.1981, then u have the option of selecting cost of acquisition either as FMV as on 01.04.1981 or the original cost of acquisition.
Tax treatment of 20 flats again sold:
Actual amount received or receivable should be taken as Full value of consideration. Cost of acquisition should be taken as fair market value of 20 flats taken for the purpose of calculating capital gain at the time of 1st occasion (i.e. exchange of land for 20 flats).
Capital gain saving:
On the 1st occasion of exchanging land for 20 flats, u can save LTCG tax under section 54EC by investing u'r capital gain in RECL or NHAI bonds. Or u can save under 54F, by investing in residential house property u'r net consideration. Capital gain would be calculated by applying the following formula :
|
Actual cost of new asset |
X |
Capital Gain |
|
Full value of consideration |
In the given case, no tax would be payable as the Actual cost of 20 flats and full value of consideration for sale of land is the same i.e. fair value of 20 flats.
On the 2nd occasion at the time of sale of 20 flats, u can save tax under section 54 by investing in other residential house property. U can also save tax by investing NHAI/RECL bonds under section 54EC. The exemption would be restricted to the amount invested or long term capital gain whichever is less. Exemption u/s 54, 54F, 54EC would be available only for the Long term capital assets.
Regards,
Manoj
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