Capital Gains Tax

Kapur 1
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I purchased a residential HUDA plot (with minimum 20% construction done on the plot 10 years back, for obtaining 'temporary completion certificate' from local authorities) jointly in my and my wife's name in Nov 2011, supported with a partial loan. Am claiming tax relief on the loan interest paid minus rent - while it is not on rent but have taken a fair market assesment of the rentals in the area on the constructed part and deemed that to be on rent.

Q1 : Is this tax relief claimed correct? My belief is that there is a provision for the constructed area to be "deemed on rent" - even though it is not actually on rent.

  • I plan to start construction on this plot in May/June 2012.
  • Further I plan to sell another residential plot (held in my and my father's name) by end of 2012 / early 2013 - this plot was bought in 1998.
  • In addition to above 2, jointly in my and my wife's name, I own one residential plot and one residential flat.

Q2 : Since the sale of old plot (~dec 12) will be after 1 year period of acquisition of the new plot (acquired Nov'11) - can I claim tax benefit on LTCG to the extent of the difference between the acquisition price of new minus the indexed price of old?

Q3 : Since I will start construction on new plot prior to sale of old plot, and if I maintain a record of all construction expenses, can I set off these expenses against the LTCG? If not, will the expenses incurred on construction after the date of sale of old part be set off against the LTCG?

Q4 : If LTCG saving is not possible in above 2 cases, then what % of this LTCG amount must be kept in Capital Bonds to save the tax?

Appreciate your early response. Thank you.

huda-plot long-term-gains capital-gains home-loan
1 Answers

  1. In order to claim tax benefit on loan taken for a non self-occupied house, rent needs to be shown in income (in case its not rented out, a notional rent would need to be shown). However this interest deduction is allowed only for a residential property of which possession has been taken. A plot does not fit into this exemption. In order to get benefit this plot should be a residential house property (a built up house/flat/apartment). Even if it has one room set built, it can be considered a residential house property.

  2. You would not be able to claim tax benefit u/s 54F on sale of plot in Dec 2012, Since you would be already owning more than one residential house properties in your name at the time of sale of plot. Treatment of long term gains for your father would be computed separately.

  3. You can save tax by investing into capital gain bonds u/s 54EC. In order to save income tax fully, you would need to invest whole sale consideration share amount into these bonds. Max investment allowed in a financial year in these bonds is 50 lakh. Investment in bonds can be done within six months of sale.

Pankaj Batra5212

Thank you for your very clear response-much appreciated. Now that I have 4 properties : a)2 residential plots b)1 residential flat c)1 semi built house purchased in Nov11

After much consideration I have decided to take following actions: - Start construction in May12 on the semi built house that was purchased in Nov11-to be completed in 2 yrs

  • Sell 1 res plot in Aug12 & claim no tax benefit as at the time of sale I would be owning 3 other properties

  • Sell another residential plot in Jun13. Here I propose to set off the LTCG agsinst the const cost. Since at the time of sale, I would have already completed half the construction, can I set off this LTCG against money already spent on construction (assuming I maintain clear records)+ money that will be further spent on remaining const

Kapur•

Is the above tax savings in order?

Kapur•

Residential plots are not considered as residential house properties for taking benefit u/s 54F.

As you already would be owning two residential house properties (one flat and one semi built house) at the time of sale of both plots, you cannot claim tax benefit u/s 54F.

Try using section 54EC by investing into capital gain bonds to claim tax benefits.

Pankaj Batra•
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