I have three residential properties—one is self-occupied and the other two
are on rent. I show income from these properties under income from house
property. I bought land in April 2012 for Rs. 3 lakh and entered into a construction
agreement with a builder in April and paid entire Rs. 66 lakh for constructing a villa on the
land. The construction is expected to be completed in April 2013 and the entire
amount paid in April 2012 was paid from my provident fund (PF) accumulation. I
intend to sell one of my residential flats and we will have long-term capital
gain of Rs. 40 lakh arising out of this
sale. Can I adjust this capital gains against my payment for earlier
construction agreement entered in April 2012?
Sriram
Long-term capital gains (LTCG) arising from the sale of residential properties could be claimed as exempt from tax under the domestic tax law. For availing the tax exemption, you should either invest in a new residential house within one year before or two years after the sale date of the old residential property. Alternatively, you could construct a new house, the construction of which needs to be completed within three years from the sale date. The quantum of exemption from tax is restricted to the lower of capital gains arising from the sale of the old property or the amount invested in the new property.
The law has provided that in case of construction of a new property, the construction should be completed within three years from the date of sale of the old property. Accordingly, in a situation such as yours, the courts have held that though the construction of the new property has commenced before the sale of the old property, the benefit under section 54 may be claimed if such construction is completed within three years from the date of sale of the old residential property. As the construction of the residential property has commenced before the sale of the old residential property in July 2012 and is expected to be completed in April 2013, you could avail the tax exemption.
However, in such cases, the amount of exemption from tax (especially in respect of expenditure incurred prior to the date of sale) may be subject to litigation, especially at lower levels.
If you are unable to make the new investment either partly/entirely by the due date of filing your tax return for FY13, then you could deposit the unutilized sale proceeds into the Capital Gains Account Scheme and avail exemption from LTCG in FY13 for the old residential property subject to prescribed conditions.
Sriram
Long-term capital gains (LTCG) arising from the sale of residential properties could be claimed as exempt from tax under the domestic tax law. For availing the tax exemption, you should either invest in a new residential house within one year before or two years after the sale date of the old residential property. Alternatively, you could construct a new house, the construction of which needs to be completed within three years from the sale date. The quantum of exemption from tax is restricted to the lower of capital gains arising from the sale of the old property or the amount invested in the new property.
The law has provided that in case of construction of a new property, the construction should be completed within three years from the date of sale of the old property. Accordingly, in a situation such as yours, the courts have held that though the construction of the new property has commenced before the sale of the old property, the benefit under section 54 may be claimed if such construction is completed within three years from the date of sale of the old residential property. As the construction of the residential property has commenced before the sale of the old residential property in July 2012 and is expected to be completed in April 2013, you could avail the tax exemption.
However, in such cases, the amount of exemption from tax (especially in respect of expenditure incurred prior to the date of sale) may be subject to litigation, especially at lower levels.
If you are unable to make the new investment either partly/entirely by the due date of filing your tax return for FY13, then you could deposit the unutilized sale proceeds into the Capital Gains Account Scheme and avail exemption from LTCG in FY13 for the old residential property subject to prescribed conditions.
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