ABHIJEET PARIKH (Bcom LLB MBA) 05 September 2012

Urgent capital gain query

Dear Taxperts and lawyers

Suppose if there is a flat which is for more than 3 yrs in the book of accounts later it was sold

Now it falls under Long term Capital Gains Later on I buy another flat (which settles previous flats gain but it is more costly therefore it is only booked for which allotment letter is given ) within one year

the flat is there in my book for 1 yrs and that the new flat bought is mentioned in IT return filing

but after 1 yr I am unable to pay the entire proceeds required to buy the new flat builder says he will sell it to other party and that allotment letter stands cancelled

My question is

1 What will be the Tax implication in such a situation

2 Will I continue to get d time frame 3 yrs from the sale of old flat

3 If I sell the new flat or surrender the new flat builder under distress and if there is no capital gain will i still be entitled to short term capital gain

Reply Follow

4 Replies

Aditya Tiwari (Partner) 05 September 2012

Your income shall be taxed under SEction 41 of the IT Act any income that arise out of dispute is taxable. You shall get benefit of provisions of Capital Gain.

R RAJAGOPALAN (ADVOCATE) 06 September 2012

Your Query: "There is a flat which is for more than 3 yrs in the book of accounts later it was sold

the flat is there in my book for 1 yrs and that the new flat bought is mentioned in IT return filing

but after 1 yr I am unable to pay the entire proceeds required to buy the new flat builder says he will sell it to other party and that allotment letter stands cancelled

My question is

1 What will be the Tax implication in such a situation

2 Will I continue to get d time frame 3 yrs from the sale of old flat

3 If I sell the new flat or surrender the new flat builder under distress and if there is no capital gain will i still be entitled to short term capital gain"

Reply:1 What will be the Tax implication in such a situation

The flat initially sold, was a long term capital asset.

However if it had not been used for own residence as specified in S.54, you will not be able to avail yourself of the exemption under S.54; but you can avail yourself of the exemption under S.54F.

S 54F requires that you purchase (within the next 2 yrs), or construct (within the next 3 years), a new residential house. As you have done neither, you will not get the benefit of S 54F.

2. Will I continue to get d time frame 3 yrs from the sale of old flat

Of course, you will.

3 If I sell the new flat or surrender the new flat builder under distress and if there is no capital gain will i still be entitled to short term capital gain

As you have not, as stated in 1 above, complied with the requirements of S 54F, you cannot claim the benefit of S 54F.

However the capital gains from the sale of the old flat will be eligible to be treated as long term capital gains, to your benefit.

ABHIJEET PARIKH (Bcom LLB MBA) 06 September 2012

Thank u sir for enlighting us my further query is

The said flat is for the investment but as i am unable to pay the further payment builder will sell it to someone else

I still have the Allotment letter the building is complete

Builder says he will pay me the monies back with certain reasonable appreciation Will these amounts Short term Capital Gains?

suppose immediately i buy new flat to adjust the gain of old flat mentioned in my previous query then does it amounts to addln income for that year and amount will be taxable in short how can i save on tax

R RAJAGOPALAN (ADVOCATE) 06 September 2012

Your further query:The said flat is for the investment but as i am unable to pay the further payment builder will sell it to someone else

I still have the Allotment letter the building is complete

Builder says he will pay me the monies back with certain reasonable appreciation Will these amounts Short term Capital Gains?

Reply:

1. You may not get the benefit under S 54F for the investment in the 'said' Flat, as it has not been formally registered in your name in the official records of the Stae revenue/ local admin. authorities. Mere Allotment Letter issued to you at the time of booking, is not relevant/ enough. As it is, you have not obtained the ownership of the said Flat, but only a right for allotment on full payment to the builder.

2. The premium you may get from the Builder on his selling the Flat to a 3rd person, will be taxable in your hands, as your profit on sale of your right for allotment of the flat. It will be short term/ Long Term depending on the period for which you held the right. If it is a long term gain, the gain will be exempt in your hands if you construct/buy a new Flat within years/3years thereafter.

3. For advice on how to save on tax, better personally consult a Tax Practitioner, so that the various aspects of your case can be discussed with him.