Exemption u/s 54

DMNM 1
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I have invested in a house property in July, 2011 in the construction linked payment plan. I intend to sell another house property for financing the new property.

  1. Will I get the benefit of construction within three years from the date of sale of old property inspite of starting construction before the sale?
  2. I have financed the new house property from own funds and a housing loan till the old flat is sold. Is it necessary to show a direct nexus of funds from sale of old property for financing the new property?

DM

long-term-gain residential-property section-54 capital-gains income-tax
2 Answers

In the case of purchase of a house, the exemption is available if the investment is made within a period of one year before or after the date on which the transfer took place.

In case of construction of a house, the exemption is available if the investment is made within three years from the date of the transfer

Source: http://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2009ITAct/sec_054.htm

CA Karan Batra532

If your old house property has been owned by you for more than three years, you can claim tax benefit on capital gains earned on transaction u/s 54.

As you are buying house property by builder and not constructing yourself, you must receive possession of new house before end of two years from sale of old property. Possession and registration dates for new property should lie between one year before and two years after sale of old property.

There is as such no need to show direct linking of purchase funds for new property and sale consideration of old property.

There won't be an issue if you have prepaid yourself/through loans and then your prepay loan amount from sale consideration.

Pankaj Batra5212
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