• Long term capital gain tax

Property 1 - Residential Row House purchased in 2005 and planning to sell in Jan 2016

Property 2 - Flat (via builder) Registered in 2012, the property is under construction, and the possession is expected only by Sep. 2016.

Objective is to use the entire proceeds from sale of Property 1 to pay off loan used to Purchase Property 2. NOTE: There is gain in sale of property 1.

Will the proceeds from Property 1 attract Long term capital gain tax, considering the possession of property 2 is still not given by builder though registration was done in 2012.
Asked 11 months ago in Property Law from Thane, Maharashtra
Religion: Hindu
The relevant date is the date of registration and not the date of possession or allotment. The period for which the property has been held is the touchstone to attract short-term capital gain or long term capital gain tax. To avail of this exemption, you must use the entire profit to either buy another house within two years or construct one in three years. If you had already bought a second house within a year before selling the first one, you could still avail of the tax exemption. Such capital gain exemption is reversed and the amount taxed as capital gain if the new property is sold within three years of the date of purchase/construction. This profit will be considered a short-term gain and taxed at the normal slab rates, not the 20% beneficial rate.
Ashish Davessar
Advocate, Jaipur
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If the entire sale proceeds of property 1 is used to buy and register property 2 then you can avoid tax, but any part of the profit earned from property 1 is left unused then that part is liable to be taxed.
Purchase and investment is important to determine if the amount unused is taxable or not, in your case possession is not an important criteria.
Kiran N. Murthy
Advocate, Bangalore
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50 Consultations
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LTCG is exempt for an individual  on sale of a residential house property, if such gains (not the whole consideration) is utilised to purchase or construct another residential house.in your case since you are selling house after 11 years it would attract LTCG


 It should be noted that the new house should be purchased within one year before or two years after the date of transfer. In case of construction, the new house should be constructed within three years from the date of transfer. 
Ajay Sethi
Advocate, Mumbai
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In case the asset transferred is a long term capital asset being a residential house, and if out of the capital gains, a new residential house is constructed within 3 years, or purchased 1 year before or 2 years after the date of transfer, then exemption on the LTCG is available on the amount of investment in the new asset to the extent of the capital gains. It may be noted that the amount of capital gains not appropriated towards purchase or construction may be deposited in the Capital Gains Account Scheme of a public sector bank before the due date of filing of Income Tax Return. This amount should subsequently be used for purchase or construction of a new house within 3 years.
As per income tax act section Section 54F: When the asset transferred is a long term capital asset other than a residential house, and if out of the consideration, investment in purchase or construction of a residential house is made within the specified time as in sec. 54, then exemption from the capital gains will be available as:
(i) If cost of new asset is greater than the net consideration received, the entire capital gain is exempt.
(ii) Otherwise, exemption = Capital Gains x Cost of new asset/Net consideration.
It may be noted that this exemption is not available, if on the date of transfer, the assessee owns any house other than the new asset. It may be noted that the Finance Act 2000 has provided that with effect from assessment year 2001-2002, the above exemption shall not be available if assessee owns more than one residential house, other than new asset, on the date of transfer. Investment in the Capital Gains Account Scheme may be made as in Sec.54.
T Kalaiselvan
Advocate, Vellore
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1) under section 54 new house should be purchased within one year before or two years after the date of transfer. 


2) in the alternative it is provided that LTCG can be availed in respect of  of under construction house if it is  completed within period of 3 years from date of transfer of house . 

3) Construction of house started well before the transfer of old house - Whether exemption would be available [CIT v. J.R.Subramanya Bhat [1986] 28 Taxman 578 (Kar.)]
As held by the Karnataka High Court in the aforesaid case, construction of the new house property may be commenced even before the transfer of the old house property. It is not necessary that the construction should commence only after such transfer. The High Court held that the material condition is that the construction must be completed within stipulated period from the date of transfer and, thus, eligible for exemption.

4) you would be entitled for exemption as all gains have been invested in under construction flat and it is completed within period of 3 years from date of sale of flat by you
Ajay Sethi
Advocate, Mumbai
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1214 Consultations
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The answer for your subsequent question was already given in my previous answer which is being reproduced herein below once again for your information:
"In case the asset transferred is a long term capital asset being a residential house, and if out of the capital gains, a new residential house is constructed within 3 years, or purchased 1 year before or 2 years after the date of transfer, then exemption on the LTCG is available on the amount of investment in the new asset to the extent of the capital gains. It may be noted that the amount of capital gains not appropriated towards purchase or construction may be deposited in the Capital Gains Account Scheme of a public sector bank before the due date of filing of Income Tax Return. This amount should subsequently be used for purchase or construction of a new house within 3 years."
From the above it can be inferred that though you have registered the property in the year 2012, you may utilise LTCG (sale consideration amount) for construction purposes too, if your auditor says that you will not be eligible, then the alternative is also given in the above phrase itself. 
T Kalaiselvan
Advocate, Vellore
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127 Consultations
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