Exemption from Income Tax & Capital Gain Tax

PrasadTK 1
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Sir,

It is heartening to note that you are doing a great job by giving lot of inputs as to how to save income tax on long term capital gains. I have certain questions. I shall be grateful if you could respond.

Just to give you the background, I have booked a flat for Rs. 42 lakhs in the year 2009. I have already paid Rs. 18 Lakhs at various stages, as the payment is linked with the construction. The possession of the flat is expected in June 2013. Out of Rs.18 Lakhs, I have paid so far, Rs.10 Lakhs have been paid in the last one year and Rs.24 Lakhs are yet to be paid.

I am selling a plot (I am not aware whether it is an agricultural or non-agricultural land) for which LTCG will be Rs. 47 Lakhs. My queries are:

(a) Since I have paid to the builder Rs.10 Lakhs in the last one year and 24 Lakhs being paid upto June 2013, am I eligible for exemption from Income Tax/Capital Gain Tax for Rs.34 Lakhs or I shall be eligible for only Rs.24 Lakhs ,as this amount will be paid to the builder after I finalise the deal. (b) After availing exemption, as stated in para (a) above, can I invest the balance money in the capital gain bonds to save complete tax. (c) Since the payment of the flat is linked with the construction, do I have to deposit money in the bank in a capital gain account. Whether this amount will be capital gain fixed deposit or capital gain savings account. (d) The flat which I am purchasing, my son is a co-applicant and the whole money is being invested by me. There is no share defined in the flat between me and my son. In this scenario whatever money is being invested in the flat, as stated in para 2 can I avail exemption on the full amount invested by me in the flat.

Thanks,

TK Prasad Bangalore [email protected]

residential-property long-term-gains capital-gains income-tax
1 Answers

As you are selling a plot, you can claim tax benefit on purchase of new residential house property under section 54F. Tax benefit can also be taken under section 54EC by investing into capital gain bonds.

Just payment towards a new flat does not make you eligible for tax benefit. Possession of new flat must be taken within two years of plot sale and it should be transferred in your name through registration and stamp duty.

In case of section 54F, to save tax fully, whole sale consideration amount has to be invested into new property (and not just capital gains part). If less amount is used, income tax would be payable on proportionate basis. Say if you are selling plot for 84 lacs and you bought new flat for 42 lacs, then income tax would be applicable @ 20% on half of the capital gains (47/2=23.5 lacs).

It won't matter how much you have paid till now or later, whole of your contribution (whether paid earlier, now or in future) will be used in income tax benefit. If you paid 42 lacs in new house purchase, you will be eligible for whole 42 lacs.

From tax laws its not very clear whether both 54F and 54EC (capital gain bonds) can be used simultaneously. I would suggest you to use both with caution and take advice from an tax professional/CA experienced in property matters.

If new house is not bought before tax return filing last date (31st July) for financial year in which plot was sold, whole sale consideration amount needs to be invested into capital gain scheme account (either fixed deposit or regular savings account based upon your withdrawal needs).

Your share in new property would become on basis of amount you put into it, if share is not defined in registration documents. So whatever you invest would be applicable.

Also, please take care of following conditions for section 54F applicability:

  1. Possession of new property must be taken within two years from sale of old property. Or new house can be constructed within three years of sale.
  2. You should not be owning more than one residential house(flat/house/apartment) at the time of buying new property.
  3. If total residential houses owned by you is two (including new property), you should not buy another one within next three years of purchase. Or in next three years, total owned residential houses should not be more than two.
  4. New property should not be sold before next three years.
Pankaj Batra5212
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