Capital gain u/s 54
Querist :
Anonymous
(Querist) 27 February 2011
This query is : Resolved
Hi Expert
Will highly appreciate if you can clarify my doubts on below situation, there are some technical points in below case - request you attention to each of the points below:
X bought a house property (Property A) in Mumbai in 2005 and sold the property in Jan 2011. LT Capital Gain on this transaction comes to Rs. 23 lacs.
X also bought a residential property (Property B) for use of his parents in another city in Jun 10 jointly in four names (self, brother, mother and father). Property is under construction with delivery date of Sept 2011. Registration of property to be done at time of possession.
Agreement value for the new property including parking is 52 lacs. Of which Rs. 15 lacs (initial contribution) has been paid from X’s own sources and Rs. 32 lacs has been financed by bank loan. Rs. 5 lacs is payable to builder on possession.
Initial contribution of Rs. 15 lacs paid by X was paid through his father’s a/c, this was done to facilitate prompt transfer to the seller (since X resides in a different city). X had to transfer these 15 lacs to his father’s a/c from where cheque was issued to seller. X has solely been servicing loan EMI and is expected to do same for life of loan.
Sec 54 says that the capital gain arising from sale above can be offset against the cost of the new asset if the asessee 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.
In addition to Property A and B, X has invested in 3 more residential properties (all in city of his current residence). A couple of which are already on rent and chargeable to income tax under the head "Income from house property" and the remaining one is still under construction
Question:
1. Can capital gain from Property A be offset against the cost of acquisition of Property B u/s 54
2. Since property B has not yet been registered, will it have a bearing on claiming tax exemption
3. Also will the initial contribution routed via father’s a/c (though merely to facilitate transaction) have an impact
4. In case answer to 1 is yes, what will be the amount of offset.
a. Entire capital gain since cost of Property B is less than Capital gain of Property A. In this case are their any guidelines towards use of the proceeds from sale of Property A or the entire proceeds can it be freely used.
b. Or only self contribution of Rs. 15 lacs can be offset.
c. What wld be the treatment of remaining capital gain of Rs. 8 lacs. Can the same be offset be prepaying the home loan on Property B. If not wld this excess amt need to be deposited with SBI in an identified capital gain account.
d. And will payment towards final payment to builder and towards registration and stamp duty qualify.
soumitra basu
(Expert) 15 April 2011
Answers:
1. Yes. x is only the legal owner of 1/4th value of the property.
2. No.
3. No. He has only lended his name.
4. Presently 15 Lacs.
For getting total exemption of the capital gain X has to invest entire sale proceeds and he should be the legal owner of the property. In case of joint property, as mentioned, only 1/4th share shall be taken into consideration.
5. It is not clear whether it was residential house property or not. The treatment of residential house property and other property are different.
6. To save capital gain firstly X has to calculate capital gain and the entire money should be deposited in specified bond within six months from the date of sale.
