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Urgent pls reply!

Rajat Gurnani (Student) (60 Points)

26 November 2012

Dear All,

My mother received a gift in cash (through bank) from her father, i hope the same is exempt in her hands.

Next is that she purchased a house from the same money. (Within 1 yr of sale of the below house)

Further she sold a house which she got from inheritance...

Now finally my ques is can we treat this income from sale of house exempt on the clause that we purchased a new house within 1 yr?

Hoping for a good answer!

Pls reply...:-)

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3 Replies

CA.Sahil Shah (C.A.) (26 Points)
Replied 26 November 2012

1. Relevant abstract of 56(2)(vi):

where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 ^1a[but before the 1st day of October, 2009], the whole of the aggregate value of such sum:

Provided that this clause shall not apply to any sum of money received—

(a) from any relative

In short since your Dad gave your Mom money as a gift it is exempt (being a relative within the meaning of 'relative' as per Income Tax Act, 1956

2. Relevant abstract of Section 54 of Income Tax Act

where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (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, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, - (i) If the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil

In short since your Mom has applied entire amount of sale proceeds of the house sold in purchase of new house within one year before selling of new house than you not liable to pay capital gain tax.

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Ravi Kumar Mahaur (CA-FINAL) (202 Points)
Replied 28 November 2012

1) The gifted amount is exempt in her hands u/s 56(2)(vii).

2) She is liable to tax on capital gain that arises due to sale of the house that she has got from inherittance.

3) Your mother can claim exemption from capital gain u/s 54 for the amount paid for another house. But the capital gain should be LONG term if it is short term than no exemption u/s 54 is available to her.

But please make sure about one thing that both such houses should be residential house property for clamining exemption benefit u/s 54.

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