Capital Gain

Jatinder Chugh (Querist) 02 July 2010 This query is : Resolved
I have got a residential house from my mother under will 2 years back. Now i want to sale it. Whether the gain would be short term or period of house held by my mother would be included in my period of holding and it would be a Long term. If it is short term can i get exemption u/s 54

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DEFENSE ADVOCATE.-firmaction@g (Expert) 02 July 2010
For getting exemption investment options are there ELSS one lack and other bonds full exemption.

If you invest the proceds in other house property capital gains totally exempt.

Vineet (Expert) 02 July 2010
The period of hoding in your mother's hand shall also be included for determinantion of total period of holding of asset by you. Hence prima facie it will be a case of Long term capital gain and you can avail exemption u/s 54 or 54EC.

Exemption u/s 54 is not available in the case of Short Term Capital Gain.

Sorry, Shashi Kumar Ji, in the case of Short Term Capital Gain, no exemption or deduction mentioned by you is allowable.

Kumar Thadhani (Expert) 02 July 2010
Yes I do agree with expert Vineet.

DEFENSE ADVOCATE.-firmaction@g (Expert) 02 July 2010
Please check up with IT laws any capital gain arising out of sale of house property if invested in purchase of new house property it is exempt.

DEFENSE ADVOCATE.-firmaction@g (Expert) 02 July 2010
Section 54E

CAPITAL GAIN ON TRANSFER OF CAPITAL ASSETS NOT TO BE CHARGED IN CERTAIN CASES.

(1) Where the capital gain arises from the transfer of a long-term capital asset before the 1st day of April, 1992, (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, within a period of six months after the date of such transfer, invested or deposited the whole or any part of the net consideration in any specified asset (such specified asset being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say, -

(a) If the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the net consideration shall not be charged under section 45;

Provided that in a case where the original asset is transferred after the 28th day of February, 1983, the provisions of this sub-section shall not apply unless the assessee has invested or deposited the whole or, as the case may be, any part of the net consideration in the new asset by initially subscribing to such new asset :

Provided further that in a case where the transfer of the original asset is by way of compulsory acquisition under any law and the full amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period of six months referred to in this sub-section shall, in relation to so much of such compensation as is not received on the date of transfer, be reckoned from the date immediately following the date on which such compensation is received by the assessee or the 31st day of March, 1992, whichever is earlier.

Explanation 1 : For the purposes of this sub-section, "specified asset" means, - (a) In a case where the original asset is transferred before the 1st day of March, 1979, any of the following assets, namely :- (i) Securities of the Central Government or a State Government;

(ii) Savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959);

(iii) Units in the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963);

(iv) Debentures specified by the Central Government for the purposes of clause (ii) of sub-section (1) of section 80L;

(v) Shares in any Indian company which are issued to the public or are listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder, where the investment in such shares is made before the 1st day of March, 1978;

(va) Equity shares forming part of any eligible issue of capital where the investment in such shares is made after the 28th day of February, 1978;

(vi) Deposits for a period of not less than three years with the State Bank of India established under the State Bank of India Act, 1955 (23 of 1955), or any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or any nationalised bank, that is to say, any corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank);

(b) In a case where the original asset is transferred after the 28th day of February, 1979 but before the 1st day of March, 1983 such National Rural Development Bonds as the Central Government may notify 813 in this behalf in the Official Gazette;

(c) In a case where the original asset is transferred after the 28th day of February, 1983, but before the 1st day of April, 1986, any of the following assets, namely :- (i) Securities of the Central Government which that Government may, by notification in the Official Gazette, specify in this behalf;

(ii) Special series of units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), which the Central Government may, by notification in the Official Gazette, specify 815 in this behalf;

(iii) Such National Rural Development Bonds as have been notified under clause (b) of Explanation 1 or as may be notified 816 in this behalf under this clause by the Central Government;

(iv) Such debentures issued by the Housing and Urban Development Corporation Limited [a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)], as the Central Government may, by notification in the Official Gazette, specify 817 in this behalf;

(d) In a case where the original asset is transferred after the 31st day of March, 1986 any of the assets specified in clause (c) and such bonds issued by any public sector company, as the Central Government may, by notification in the Official Gazette, specify 819 in this behalf;

(e) In a case where the original asset is transferred after the 31st day of March, 1989, any of the assets specified in clauses (c) and (d) and such debentures or bonds issued by the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987), as the Central Government may, by notification in the Official Gazette, specify in this behalf.

Explanation 2 : "Eligible issue of capital" shall have the meaning assigned to it in sub-section (3) of section 80CC.

Explanation 3 : An assessee shall not be deemed to have invested the whole or any part of the net consideration in any equity shares referred to in sub-clause (va) of clause (a) of Explanation 1, unless the assessee has subscribed to or purchased the shares in the manner specified in sub-section (4) of section 80CC.

Explanation 4 : "Cost" in relation to any new asset, being a deposit referred to in sub-clause (vi) of clause (a) of Explanation 1, means the amount of such deposit.

Explanation 5 : "Net consideration" in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

(1A) Where the assessee deposits after the 27th day of April, 1978 the whole or any part of the net consideration in respect of the original asset in any new asset, being a deposit referred to in sub-clause (vi) of clause (a) of Explanation 1 below sub-section (1), the cost of such new asset shall not be taken into account for the purposes of that sub-section unless the following conditions are fulfilled, namely :- (a) The assessee furnishes, along with the deposit, a declaration in writing, to the bank or the co-operative society referred to in the said sub-clause (vi) With which such deposit is made, to the effect that the assessee will not take any loan or advance on the security of such deposit during a period of three years from the date on which the deposit is made;

(b) The assessee furnishes, along with the return of income for the assessment year relevant to the previous year in which the transfer of the original asset was effected or within such further time as may be allowed by the Assessing Officer, a copy of the declaration referred to in clause (a) duly attested by an officer not below the rank of sub-agent, agent or manager of such bank or an officer of corresponding rank of such co-operative society.

(1B) Where on the fulfilment of the conditions specified in sub-section (1A) the cost of the new asset referred to in that sub-section is taken into account for the purposes of sub-section (1), the assessee shall, within a period of ninety days from the expiry of the period of three years reckoned from the date of such deposit, furnish to the Assessing Officer a certificate from the officer referred to in clause (b) of sub-section (1A) to the effect that the assessee has not taken any loan or advance on the security of such deposit during the said period of three years.

(1C) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of the original asset, made after the 31st day of March, 1992, in respect of which the assessee had received any amount by way of advance on or before the 29th day of February, 1992 and had invested or deposited the whole or any part of such amount in the new asset on or before the later date, then, the provisions of clauses (a) and (b) of sub-section (1) shall apply in the case of such investment or deposit as they apply in the case of investment or deposit under that sub-section.

(2) Where the new asset is transferred, or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which the new asset is transferred or converted (otherwise than by transfer) into money.

Explanation 1 : Where the assessee deposits after the 27th day of April, 1978 the whole or any part of the net consideration in respect of the original asset in any new asset, being a deposit referred to in sub-clause (vi) of clause (a) of Explanation 1 below sub-section (1), and such assessee takes any loan or advance on the security of such deposit, he shall be deemed to have converted (otherwise than by transfer) such deposit into money on the date on which such loan or advance is taken.

Explanation 2 : In a case where the original asset is transferred after the 28th day of February, 1983 and the assessee invests the whole or any part of the net consideration in respect of the original asset in any new asset and such assessee takes any loan or advance on the security of such new asset, he shall be deemed to have converted (otherwise than by transfer) such new asset on the date on which such loan or advance is taken.

(3) Where the cost of the equity shares referred to in sub-clause (va) of clause (a) of Explanation 1 below sub-section (1) is taken into account for the purposes of clause (a) or clause (b) of sub-section (1) a deduction with reference to such cost shall not be allowed under section 80CC.

Related Judgements

COMMISSIONER OF INCOME-TAX v. S. R. V. PRESS & PUBLICATIONS (P) LTD.

DEFENSE ADVOCATE.-firmaction@g (Expert) 02 July 2010
Please also Section 55

MEANING OF "ADJUSTED", "COST OF IMPROVEMENT" AND "COST OF ACQUISITION".

(1) For the purposes of sections 48 and 49 , - (a) "Cost of any improvement", - (1) In relation to a capital asset being goodwill of a business or a right to manufacture, produce or process any article or thing shall be taken to be nil; and

(2) In relation to any other capital asset, - (i) Where the capital asset became the property of the previous owner 852 or the assessee before the 1st day of April, 1981, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and

(ii) In any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head "Interest on securities", 853c "Income from house property", "Profits and gains of business or profession", or "Income from other sources", and the expression "improvement" shall be construed accordingly.

(2) For the purposes of sections 48 and 49, "cost of acquisition", - (a) In relation to a capital asset, being goodwill of a business, or a right to manufacture, produce or process any article or thing, tenancy rights, stage carriage permits or loom hours, - (i) In the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and

(ii) In any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49], shall be taken to be nil;

(aa) In a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee - (A) Becomes entitled to subscribe to any additional financial asset; or

(B) Is allotted any additional financial asset without any payment, then, subject to the provisions of sub-clauses (i) and (ii) of clause (b), - (i) In relation to the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset;

(ii) In relation to any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee;

(iii) In relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset; and

(iiia) In relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee;

(iv) In relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset;

(b) In relation to any other capital asset, - (i) Where the capital asset became the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset as on the 1st day of April, 1981, at the option of the assessee;

(ii) Where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee;

(iii) Where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head "Capital gains" in respect of that asset under section 46, means the fair market value of the asset on the date of distribution;

(v) Where the capital asset, being a share or a stock of a company, became the property of the assessee on - (a) The consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares,

(b) The conversion of any shares of the company into stock,

(c) The re-conversion of any stock of the company into shares,

(d) The sub-division of any of the shares of the company into shares of smaller amount, or

(e) The conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.

(3) Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner.

Related Judgements

COMMISSIONER OF INCOME-TAX v. S. R. V. PRESS & PUBLICATIONS (P) LTD.

SMT. SITADEVI v. COMMISSIONER OF INCOME TAX.

COMMISSIONER OF INCOME-TAX v. SIJUA (JHERIA) ELECTRICAL SUPPLY CO. LTD.

go through these provisions :-

DEFENSE ADVOCATE.-firmaction@g (Expert) 02 July 2010
Section 54

PROFIT ON SALE OF PROPERTY USED FOR RESIDENCE.

(1) Subject to the provisions of sub-section (2), where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, - (i) If the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

(ii) If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139 786 , shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme 787 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then, - (i) The amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii) The assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

Vineet (Expert) 05 July 2010
Dear Shashi Kumar ji

Thanks for these long posts.

I just request to please note that all exemptions u/s 54 to 54F are available in case of LONG TERM CAPITAL GAINS only with exception of section 54B applicable for transfer of Agricultural Land.

Even section 54E quoted by you (though it was applicable for transfers prior to 1-4-1992 only) also applied to capital gain arising from transfer of long term capital asset.

There is no provision in Income Tax Act allowing any tax relief, deduction against Short Term Capital Gains.