Tax Tips: Capital gains tax
Can I claim exemption under Section 54?
Q. I have sold my residential house in January 2023 for a consideration of Rs 45 lakh. I also purchased an unfinished residential flat in February 2024. I entered into an agreement in February 2024 to complete the construction of the unfinished flat for a total consideration of Rs 55 lakh. The consideration in respect of unfinished flat was paid between January 2023 to September 2024. Can I get the exemption under Section 54 to the extent of the capital gain earned on the sale of my residential flat in January 2023?
Dharam Pal, Chandigarh
It should be possible to get the exemption under Section 54 of the Income-tax Act 1961 in case the construction of the new flat was completed within three years of the residential flat sold in January 2023.
A similar issue came up before the Ahmedabad Bench of the Income-tax Tribunal and it was held that the date of commencement of construction is irrelevant for the purpose of claiming exemption under Section 54 of the Income-tax Act 1961. So, as long as the construction is completed within three years from the date of transfer of original asset, the assessee should be able to get such exemption. In your case the sale of flat took place in January, 2023, and construction of new house has been completed in September, 2024 i.e. within a period of three years. Therefore, the exemption should be available.
TDS deduction
Q. I am an NRI. I intend selling my house in Ludhiana, which I had inherited from my parents about 10 years back. I have been informed that tax at source will be deducted from the consideration receivable by me on the sale of such property. Is it correct? Kindly advise.
Sudarshan Arora, Jagraon
The capital gain arising on the sale of the property owned by you would be a long term capital gain as the property has been held by you for more than three years. In accordance with the provisions of Section 195 of the Income-tax Act 1961, tax at source will have to be deducted from the sale consideration. For this purpose, the benefit of basic exemption limit i.e. the maximum amount on which tax is not payable would not be available and tax at source will be deducted from the gross amount.
These provisions would be applicable even if the capital gain arising on the sale of the house property is utilised for the purchase of capital gain tax saving bonds.
Do I need to pay registration fee?
Q. I need your advice with regard to a settlement between family members. My family (Mother, brother, sister and myself) inherited several immoveable properties after the demise of my father, which were also inherited by him from our grandfather. After my father died, my mother, brother, sister and myself, distributed all properties among ourselves by making a family settlement deed which has duly been registered.
As per the family settlement 10 acres of agricultural land within municipal limits has been allocated to me. The mutation is to be done in my name alone and my brother’s name has to be deleted. Do I have to pay any registration fee to get it mutated in my name alone, as there is no sale and purchase involved in the transaction?
Vaibhav Chaudhary, Ambala
A family settlement deed which is duly registered should be a valid document for the purpose of getting the mutation done in your favour. The family settlement deed must have been signed by all the concerned parties and therefore the Tehsildar should have no difficulty in mutating the agricultural land in your name on the basis of such settlement deed. At best, he may ask for no objection letter from all the parties to the deed, which should not be a problem in view of their having consented to such a settlement.
Can capital gain be used to buy a plot?
Q. 1) I sold a house more than two years ago. The amount is lying in capital gain account in the bank. I want to construct a house by purchasing a plot. Can I invest the amount of capital gain in purchasing the plot and construction there on both?
2) I have another plot allotted to me long time ago. Can I invest this amount of capital gain for the construction of house on this old allotted plot?
Dhiraj Singh, Patiala
Your queries are replied hereunder:
(i) You are required to utilise the amount of capital gain for constructing a residential house within a period of three years from the date of sale of house so as to claim the exemption from leviability of income tax on the capital gain arising on the sale of the house. The amount of capital gain cannot be utilised for purchase of plot only as in such a case exemption under section 54 of the Act would not be admissible.
(ii) It would, therefore, be advisable for you to construct a residential house on the plot which is already held by you so that the construction is completed within a period of three years from the date of sale of the residential house. The amount lying in capital gain account will have to be utilised for construction of the residential house within the period specified above.
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