Hello. My fathers land was willed to my mother, my sister and me. It was sold post his demise and the proceeds of the same were divided equally among 3 of us and went to our respective bank accounts. My mother wants to pay the capital gains tax for her share. My sister and me want to invest our share of the proceeds into a single under construction property. Question one is: Is there any law that says that the proceeds of my sister and mine, should be invested in different properties only. Can it be invested in the same property and both of us can individually claim under 54F? Question two is: If the property is under construction (by a builder) and will possession handed over after 3 years, what would be the view of the IT department? I intend to complete total payment of for the new property within the stipulated 3 years period.
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Te capital gains tax would be applicable when you profit from the sale of the property that you sold. The money that accrued to you from the sale of the property cannot be taxed as capital gains tax.
Your sister and you can invest in the property jointly and the proceeds can be divided later on and the tax also paid.
The flat or building that would be handed back to you by the builder if sold, would be subject to tax.
Regards
Thank you Capital gains tax is applicable on almost the entire amount as property was bought over 25 years back and even after indexation, it would be more or less the entire sale of the proceeds Land was sold Aug 2018. For under construction, 54F can be taken until July 2021 (3 years). However possession will be given in Sep 2022. But, entire amount that attracts capital gains, would be given to the builder by July 2021. In that case, would that be fine with the IT Department?
Dear Client,
Amounts can be invest in jointly owned property and in actual only single property can be purchased to avail exemption of LTCG tax.
And after Budget 2019 announcement - two house properties but not exceed 2 crores. The gains can also be invested in the construction of a property, but construction must be completed within three years from the date of sale.
1)it can be invested in the same property not necessary to invest in separate properties
2) you can invest capital gains in under construction property
3) merely because construction is not completed does not dis entitle you for claiming exemption from capital gains
Adv Sethi - Thanks. On point 3, the builder has upfront said that possession will be given at a date that is in excess of 3 years from the sale of land. So I hope your response on point 3 stands valid despite that. Adv Rajawat - Yes, from what the law states I understand it says 3 years. But as I mentioned, the completion would be post 3 years of sale of land. Of the cases I have read, the view of the law is that if the flat allocation is done, the stamp duty and registration paid for, then the intent is clear to the IT Dept that the proceeds will go into reinvestment of another property.
You can reinvest sale proceeds in purchase of property
if you have been issued allotment letter by builder , reinvested sale proceeds you would not be denied benefit of exemption merely because construction has not been completed in 3 years
Well, that will be an illegal process as at the time of exemption availed, property was not in existence in ready to use condition.
" but construction must be completed within three years from the date of sale ".
The word COMPLETED has been used and not payment. Hope you got what i meant.
Capital gains will arise u/s 54 and not 54F
You and your sister can invest capital gains in same property
Capital gains have to be invested within 3 years of transfer of property, in case you are buying under construction property. So the payment has to be adjusted accordingly
Both can invest the capital gains in a single property too and claim exemptions separately under section 54 of IT Act.
In a recent order by ITAT it was held thus:
ITAT held that booking of flat with the builder has to be treated as construction of flat by the assessee and hence period of three years would apply for construction of new house from the date of transfer of long term capital asset. Therefore, the Ld. CIT(A) has rightly allowed the exemption u/s. 54 of the Act, because in the present case also the flat booked with the builder by the assessee has to be considered as a case of construction of flat and the deduction claimed by the assessee u/s. 54 of the Act was rightly allowed, which does not need any interference on our part, hence, we uphold the same and reject the grounds raised by the Revenue.
booking of flat with the builder has to be treated as construction of flat by the assessee and hence period of three years would apply for construction of new house from the date of transfer of long term capital asset.
It was held that thrust was on investment and not on completion. Hence the under construction property which not completed within three years are also eligible for exemption under section 54F of IT act/
Yes the intent is clear and the three years spam is applicable.
