Buying and Selling of Property, Plots, Flats, Land, Independent Houses, Floors or any other form of residential property is a frequent activity in present scenario. Especially with so much activity in the real estate sector, it has been considered to have given good returns. The attractive home loan schemes have made it even more lucrative. However, the transactions are often subject to complicated income tax structure. Here is one case that may solve some of your queries.
When you are about to sell a piece of land for a profit, it is quite likely that Capital Gains Tax would be imposed in the form of Long Term Capital Gain (LTCG). This remains a concern for a lot of people that how can they possibly avoid Capital Gains Tax arising out of the Long Term Capital Gain. In the present article we are discussing an example case.
In the present case the example assessee, an individual, is in the process of transferring a long term capital asset not amounting to a residential house and the proceeds are to be utilised to buy a capital asset amounting to residential house.
The treatment of capital gain on the transfer of capital asset not amounting to residential property is under consideration. Section 54F of the Income tax Act 1961 deals with the current situation.
Where the assessee is an individual, and capital gain arises from the transfer of any long term capital asset (not being a residential house) which in the present case is a piece of land (not amounting to agricultural land) and the assessee has within a period of one year before or after the date on which the transfer of the original asset has taken place, has purchased a residential house (new asset) or has constructed a residential house within three years; the capital gain shall be dealt as per the following conditions:
However, the capital gains exemption enumerated in (a) & (b) above is subject to the some conditions. The benefits as discussed shall not be available if:
If you have further queries on the subject of tax related queries, the experts in the panel would be happy to help you with sound tax advice.
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Dear Sir,
One more question,
Sale amount of flat is 20L and was purchased for 8L. So 20% tax will be applicable to sale amount 20L or profit 12L?
Regards
RG
@RG
See below computation for LTCG and income tax.
Purchase Year = 2007-08, Purchase Cost = 800000, Cost Inflation Index (CII) for purchase year = 551
Sale Year = 2012-13, Selling price = 2000000, CII for sale year = 850 (CII for 2012-13 is assumed as 850 as its not been declared yet)
Indexed Purchase price = 800000 x (850/551) = 1234120
Long term capital gain = 2000000 - 1234120 = 765880
Income tax on capital gain = 765880 x 20% = 153176
Dear Pankaj
May I inform you that some of your replies to queries on LTCG are at variance, so far as Recent Court Judgments are concerned. I am sending hereunder provisions of Section 54 which may help you to some extent to arrive at precise reply
SECTION 54/54F EXEMPTION OF RESIDENTIAL HOUSE PROPERTY
429. Exemption from capital gains arising from transfer of a house property used for residence - Whether available to Hindu undivided families
1. A question has been raised whether the relief provided under section 54 in respect of capital gains arising from the transfer of a house property used for residence on fulfilment of certain conditions is available to a Hindu undivided family. In other words, whether a Hindu undivided family which transfers any house property; which was being used by it for residence of its members during the two years immediately preceding the date of transfer and purchases a new house property within one year of the date of transfer or constructs a new house property within two years (now three years) from the date of transfer, is entitled to relief provided in section 54 in respect of the capital gains arising on the transfer of the said house property.
2. We have been advised that the language of the section, particularly the expression “was being used by the assessee or a parent of his mainly for purposes of his or the parents’ own residence” cannot be interpreted so as to extend the relief to Hindu undivided family also. It is, therefore, clarified that the relief under section 54 is available only to the individual transferring house property and fulfilling the conditions mentioned in the section and not to the Hindu undivided family.1
Instruction : No. 1081 [F. No. 207/20/76-IT(A-II)], dated 3-8-1977.
430. Assessee retained more than one house for the purpose of his own or parents’ own residence and has used them for such residence from time to time - Whether capital gains arising on transfer of each of such houses should qualify for exemption
Section 54 lays emphasis on the use of the property mainly for the purpose of assessee or his parents’ own residence. 2If an assessee has retained more than one house for the purpose of his own or the parents’own residence, and has used them for such residence, and not for any other purpose, the capital gains arising on transfer of each of such house would qualify for exemption under section 54, provided the other conditions spelt out therein are fulfilled.
Letter : No. 207/24/76-IT(A-II), dated 25-3-1977.
431. Capital gains from long-term capital asset - Investment in a flat under the self-financing scheme of the Delhi Development Authority - Whether to be treated as construction for the purposes of capital gains
1. Sections 54 and 54F provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer.
2. The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-Financing Scheme (SFS) of the D.D.A. amounts to purchase or is construction by the D.D.A. on behalf of the allottee. Under the SFS of the D.D.A., the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality. If there is a failure on the part of the D.D.A. to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for recovery of possession.
3. The Board have been advised that under the above circumstances, the inference that can be drawn is that the, D.D.A. takes up the construction work on behalf of the allottee and that the transaction involved is not a sale. Under the scheme the tentative cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-Financing Scheme of the D.D.A. shall be treated as cases of construction for the purpose of capital gains.
Circular : No. 471 [F. No. 207/27/85-IT(A-II)], dated 15-10-1986.
JUDICIAL ANALYSIS
EXPLAINED IN - In CIT v. Mrs. Hilla J.B. Wadia [1993] 69 Taxman 114 (Bom.), it was observed that the Board had stated in Circular No. 471, dated 15-10-1986 that when an allotment letter is issued to an allottee under this scheme on payment of the first instalment of the cost of construction, the allotment is final unless it is cancelled. The allottee, thereupon, gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking delivery of possession is only a formality. The Board has directed that such an allotment of flat under this scheme should be treated as cost of construction for the purpose of capital gains.
EXPLAINED IN - The above two circulars (dated 15-10-1986 and 16-12-1993) were explained in Mrs. Seetha Subramanian v. ACIT [1996] 59 ITD 94 (Mad. - Trib.) with the following observa-tions :
“. . . The assessee also relied upon certain circulars issued by the CBDT. One of the circulars was [Circular No. 471, dated 15th October, 1986. This was issued by the CBDT clarifying the position that where an assessee acquires a flat by an allotment under the self-financing scheme of the Delhi Development Authority, the allotment itself is sufficient compliance for getting the benefit under section 54F, even though the assessee has not paid all the instalments due under the said scheme. Later by another Circular No. 672, dated 16th December, 1993, the CBDT has issued clarification extending the same benefits for acquisition of houses or flats on allotment under similar schemes. Therefore it was contended that the intention of the Legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. We find force in the argument of the learned counsel for the assessee. The said intention is very clear from the two circulars issued by the CBDT, where it was held that an assessee is entitled to the benefit of sections 54 and 54F, if an assessee gets an allotment under the self-financing scheme and pays the first instalment of the cost of the construction. From that it is clear that in order to get the benefit under section 54F the assessee need not complete the construction of the house and occupy the same. . . .” (p. 98)
APPLIED IN - In Smt. Shashi Varma v. CIT [1997] 224 ITR 106 (MP), the above circular was relied on, and the Court observed :
“This clinches the matter and it was not proper for the Tribunal to have ignored the circular because it has a persuasive value and it was in the nature of granting relief. Therefore, the Tribunal should have considered the circular sympathetically and granted the relief. . . ” (p. 108)
432. Whether allotment of flats/houses by co-operative societies and other institutions, whose schemes of allotment and construction are similar to those of DDA, should be treated as cases of construction for purposes of sections 54 and 54F
1. Attention is invited to Board’s Circular No. 471, dated 15-10-1986. It was clarified therein that cases of allotment of flats under the Self-Financing Scheme of the Delhi Development Authority (DDA) should be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act. The Board has since received representations that even in respect of allotment of flats/houses by co-operative societies and other institutions, whose schemes of allotment and construction are similar to those of Delhi Development Authority, a similar view should be taken.
2. The Board has considered the matter and has decided that if the terms of the schemes of allotment and construction of flats/houses by the co-operative societies or other institutions are similar to those mentioned in para 2 of Board’s Circular No. 471, dated 15-10-1986 (Sl. No. 428), such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act.
Circular : No. 672, dated 16-12-1993.
433. Whether capital gain arising from transfer of a self-occupied residential house would be entitled to exemption
1. Section 54 of the Income-tax Act provides for exemption in respect of capital gain arising from the transfer of a long-term capital asset, being a residential house, the income of which is chargeable under the head ‘Income from house property’ if the conditions laid down in the said provision are fulfilled.
2. Under section 23(2) of the Income-tax Act, as amended by the Finance Act, 1986, the annual value of one house in the occupation of the owner for purposes of his own residence is taken as nil. A question has been raised whether capital gain arising from the transfer of such a house property would be entitled to exemption under section 54 of the Act.
3. The question appears to have been raised because of the words italicised in para 1 above. As the annual value of a self-occupied house would be taken to be nil by virtue of section 23(2) of the Act, an Assessing Officer may take the plea that the income of such a house is not chargeable under the head ‘Income from house property’.
4. The Board is of the view that such a construction of the aforesaid provision in section 54 of the Act is not correct. Income from a self-occupied residential house is chargeable under the head ‘Income from house property’ even though in certain circumstances such income may be computed at nil or at a negative figure by virtue of section 23(2) read with section 24 of the Act.
5. Thus, a person shall be entitled to claim exemption under section 54 of the Act even in respect of a self-occupied residential house.
Circular : No. 538, dated 13-7-1989.
434. Whether, in cases where the residential house is constructed within the specified period, the cost of such residential house can be taken to include the cost of the plot also
1. Sections 54 and 54F provide for a deduction in cases where an assessee has, within a period of one year before or two years after the date on which the transfer of a capital asset takes place, purchased, or has within a period of three years after that date constructed, a residential house. The quantum of deduction is itself dependent upon the cost of such new asset. It has been represented to the Board that the cost of construction of the residential house should be taken to include the cost of the plot as, in a situation of purchase of any house property, the consideration paid generally includes the consideration for the plot also.
2. The Board has examined the issue whether, in cases where the residential house is constructed within the specified period, the cost of such residential house can be taken to include the cost of the plot also. The Board are of the view that the cost of the land is an integral part of the cost of the residential house, whether purchased or built. Accordingly, if the amount of capital gain for the purposes of section 54, and the net consideration for the purposes of section 54F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54/54F, provided that the acquisition of plot and also the construction thereon, are completed within the period specified in these sections.
Circular : No. 667, dated 18-10-1993.
435. Taxability of unutilised deposit under the Capital Gains Accounts Scheme, 1988 in the hands of the legal heirs of the assessee
1. Under sections 54, 54B, 54D, 54F and 54G of the Income-tax Act, 1961, capital gain is not chargeable to tax if the amount of capital gain or net consideration has been utilised for specified purposes by the assessee within the stipulated period laid down in the relevant section. These provisions also provide for the deposit in specified Banks, etc., of the amount of capital gain which is not utilised by the assessee for the acquisition of new assets before the date of furnishing the return of income under section 139(1). The amount of capital gain already utilised for the acquisition/construction of new asset together with amount deposited is deemed to be the cost of new asset and, consequently, this amount is not chargeable to capital gain in the year of transfer of asset. The provisions of sections 54, 54B, 54D, 54F and 54G further provide that if the amount deposited is not utilised wholly or partly for the prescribed purposes, within the period specified, the amount not so utilised shall be charged under section 45 as the income of the financial year in which the period of two/three years (as prescribed in the relevant section) from the date of transfer of the original asset expires.
2. A question has been raised regarding the taxability of the unutilised deposit amount in the case of an individual who dies before the expiry of the stipulated period.
3. The matter has been considered by the Board and it is clarified that in such cases the said amount cannot be taxed in the hands of the deceased. This amount is not taxable in the hands of legal heirs also as the unutilised portion of the deposit does not partake the character of income in their hands but is only a part of the estate devolving upon them.
Circular : No. 743, dated 6-5-1996.
436. Text of Scheme framed under sub-section (2) of sections 54, 54B, 54D, 54F and 54G and sub-section (4) of section 54F
NOTIFICATION 1
In exercise of the powers conferred by sub-section (2) of section 54, sub-section (2) of section 54B, sub-section (2) of section 54D, sub-section (4) of section 54F and sub-section (2) of section 54G of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby frames the following Scheme, namely :—
1. Short title, commencement and application - (1) This Scheme may be called the Capital Gains Accounts Scheme, 1988.
(2) It shall come into force on the date of its publication in the Official Gazette.
(3) It applies to all assessees who are eligible for exemption under section 54, 54B, 54D, 54F or 54G of the Income-tax Act, 1961 (43 of 1961).
2. Definitions - In this scheme, unless the context otherwise requires,—
(a) “account” means a deposit account under this Scheme;
(b) “Account-A” means Deposit Account-A mentioned in paragraph 4 of this Scheme;
(c) “Account-B” means Deposit Account-B mentioned in paragraph 4 of this Scheme;
(d) “Act” means the Income-tax Act, 1961 (43 of 1961);
(e) “Deposit Office” means any branch or branch office of the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), or of a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), or of a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), authorised by the Central Government, by notification in the Official Gazette, to receive deposit and maintain account of the depositor, under this Scheme;
(f) “‘depositor” means an assessee who is eligible to make a deposit under section 54, 54B, 54D, 54F or 54G of this Act;
(g) all other words and expressions used herein but not defined and defined in the Act shall have the meanings respectively assigned to them in the Act;
(h) “Form” means a form appended to this Scheme.
3. Deposits how to be made - A deposit or deposits may be made under the provisions of section 54 or section 54B or section 54D or section 54F or section 54G of the Act by any depositor intending to avail of the benefit under the said section or sections of the Act, as the case may be, in accordance with the provisions of this Scheme.
4. Types of deposits - (1) There shall be two types of deposit accounts, namely—
(i) “Deposit Account-A”, and
(ii) “Deposit Account-B”.
(2) The deposit made under Account-A shall be in the form of “savings deposit” and subject to the other provisions of this Scheme withdrawals under this account can be made from time to time by the depositor.
(3) The deposit made under Account-B shall be in the form of “term deposit” with an option to the depositor to keep the deposit as cumulative or non-cumulative deposit. Except as provided under paragraph 7 and paragraph 9, withdrawals under this account can be made only after the expiry of the period for which the deposit under this account has been made and accepted.
(4) Such deposits may be made in one lump sum or in instalments at any time on or before the due date of furnishing the return of income under sub-section (1) of section 139 of the Act as is applicable in the case of the depositor.
5. Application for opening account - (1) Every depositor who is desirous of opening an account or accounts, as the case may be, under this Scheme for the first time, shall apply to the deposit office in Form A or as near thereto as possible, in duplicate and tender the amount of deposit payable in the manner specified in sub-paragraph (4) and a depositor intending to avail of the benefit under more than one section of the Act, as referred to in paragraph (3), shall make separate applications in the same manner, for opening account or accounts under each of such sections.
(2) While applying under sub-paragraph (1) the depositor shall exercise his option as to whether the amount is to be deposited in Account-A or in Account-B or in both the accounts, and in case of the depositor exercising his option to open Account-B, the depositor shall also exercise his option as to whether the deposit is to be made as cumulative or non-cumulative deposit as referred to in sub-paragraph (3) of paragraph 4.
(3) On receipt of an application under sub-paragraph (1), the deposit office shall open an account or accounts in the name of the depositor as opted by him under sub-paragraph (2).
(4) The payment of amount of deposit shall be made by the depositor either in cash or by crossed cheque or by draft alongwith the application.
(5) Every subsequent deposit shall be made into the deposit office at which the account stands in the same manner as stipulated in sub-paragraph (4).
(6) If the deposit is made by a cheque or a draft then, subject to such cheque or draft being realised, the effective date of deposit for the purpose of claiming exemption under the Act will be the date on which the cheque or draft is received by the deposit office alongwith the application under sub-paragraph (1) or sub-paragraph (5), as the case may be.
(7) The interest on the amount of deposit shall accrue and will be calculated subject to the provisions of paragraph (8), with effect from the date of deposit in cash or the date of realisation of the proceeds of the cheque or the draft tendered by the depositor.
(8) In the case of deposit under Account-A, the deposit office shall issue a pass book to the depositor wherein all amounts of deposits, withdrawals, together with interest due, shall be entered over the signature of the authorised officer of the deposit office.
(9) In the case of deposit under Account-B, deposit office shall issue a deposit receipt wherein the principal amount of deposit, date of deposit, date of maturity of deposit shall be entered over the signature of the authorised officer of the deposit office.
6. Issue of duplicate pass book or receipt - In the event of loss or destruction of the pass book or receipt referred to in sub-paragraph (8) or sub-paragraph (9) of paragraph 5, the deposit office may, on an application made to it in this behalf, issue a duplicate thereof.
7. Transfer and conversion of the account - (1) A depositor may, if he so desires, apply for transfer of his account or accounts, from one deposit office to another deposit office of the same bank.
(2) A depositor having a deposit in Account-B, may, at any time, if he so desires, apply in Form B or as near thereto as possible, together with his deposit receipt, for transfer of the amount standing to his credit in Account-B to his deposit in Account-A opened under the same section of the Act under which the said Account-B was opened and the request of the depositor may be accepted subject to the other provisions of this Scheme.
(3) (a) A depositor while applying under sub-paragraph (2) shall furnish in Form B the requisite particulars of his Account-A to which the amount from Account-B is required to be transferred.
(b) Where the depositor is not having a deposit in Account-A he shall state such fact and also make a request for opening an Account-A in his name, as specified in Form B.
(4) If the request under sub-paragraph (2) has been made for transfer of amount standing to the credit in Account-B, before the expiry of the specified period for which the deposit in Account-B was made, such request shall be treated as premature withdrawal of amount from deposit in the said Account-B and the amount of interest accrued, if any, in the said Account-B shall be calculated by the deposit office in accordance with the provisions of sub-paragraph (4) of paragraph 8.
(5) If the request under sub-paragraph (2) has been made for transfer of amount standing to the credit in Account-B on or after the expiry of the specified period for which the deposit in Account-B was made, the amount of interest accrued in Account-B shall be calculated at normal rate as specified by the Reserve Bank of India in pursuance of paragraph 8 in respect of a deposit in Account-B.
(6) On receipt of an application under sub-paragraph (2), the deposit office shall calculate the amount of interest, if any, accrued in Account-B till the date on which actual transfer of amount to Account-A is made, subject to the provisions of paragraph 8 and close Account-B after transferring the total amount standing to the credit in Account-B to Account-A :
Provided that where in such case of transfer the depositor does not have a deposit in Account-A, an Account-A shall be opened in the name of the depositor and the amount standing to his credit in Account-B shall then be transferred to Account-A as so opened.
(7) A depositor, if he so desires, may apply in Form B together with his pass book, for opening an Account-B in his name, by way of transfer of the whole or any part of the amount standing to his credit in Account-A, under the same section of the Act under which his Account-A has been opened.
(8) After the conversion of Account-B to Account-A or vice versa in the manner specified above, the interest in newly opened account or accounts, as the case may be, shall accrue with effect from the date of opening of such account or accounts.
8. Interest - (1) Interest at such rate as may be specified by the Reserve Bank of India, from time to time, shall be allowed for each calendar month on the lowest balance at the credit of a depositor under Account-A, between the close of the 10th day and the end of the month and shall be credited to the account at the end of each half-year.
(2) Interest at such rate, as may be specified by the Reserve Bank of India, from time to time, shall be allowed in respect of deposit in Account-B. In case of cumulative deposit in Account-B, the amount of interest accrued will be deemed to have been reinvested and in case of non-cumulative deposit in Account-B, the amount of interest will become due and payable at quarterly intervals.
(3) Interest due at the end of each half-year in respect of Account-A will be credited only when the amount is Re. 1 or more and the total amount of interest payable in respect of Account-A or Account-B will be rounded off to the nearest five paise.
(4) If a depositor applies under paragraph 7 or paragraph 9 or paragraph 13 for conversion of the account or withdrawal from the account or closure of the account, as the case may be, before completion of the period for which the deposit in Account-B has been accepted by the deposit office, the rate of interest payable in respect of such deposit shall be the one applicable to the period for which the deposit remained with the deposit office less one per cent penalty for a premature withdrawal on account of such conversion or withdrawal or closure, as the case may be, and any adjustment required to be made on account of such premature conversion, withdrawal or closure with respect to amount of interest already credited to the account of the depositor, shall be made by the deposit office against the amount lying to the credit of the depositor in Account-B.
9. Withdrawal from the account - (1) A depositor having Account-A may, at any time after making the initial subscription, if he so desires, apply in Form C or as near thereto as possible, together with the pass book to the deposit office for the withdrawal of amount from the balance to his credit in Account-A, subject to the other provisions of this Scheme.
(2) On receipt of an application under sub-paragraph (1) the deposit office shall, subject to the provisions of sub-paragraph (3), permit the withdrawal and enter the amount withdrawn in the pass book.
(3) At the time of any withdrawal from Account-A, other than the initial withdrawal, the depositor shall furnish in Form D in duplicate the details regarding the manner and extent of utilisation of the amount of immediately preceding withdrawal. The deposit office will retain one copy of Form D and return the other copy to the depositor after duly authenticating it.
(4) Where the amount of withdrawal referred to in sub-paragraph (2) exceeds rupees twenty-five thousand, the deposit office shall make payment to the depositor, subject to the fulfilment of the conditions prescribed in sub-paragraph (3), by way of crossed demand draft drawn in favour of the person to whom the depositor intends to make the payment.
(5) A depositor intending to make withdrawal from his deposit in Account-B, shall first apply in the manner prescribed in sub-paragraph (2) of paragraph 7 for transfer of the amount standing to his credit in Account-B to Account-A and may withdraw the requisite amount in the same manner and subject to the same conditions as stipulated in sub-paragraphs (1) and (3) after the amount standing to the credit in his Account-B has been credited to his Account-A by the deposit office.
(6) In case the application under sub-paragraph (5) is made before the expiry of the specific period for which the deposit in Account-B was made, such withdrawal will be treated as premature withdrawal, and the amount of interest accrued, if any, shall be calculated subject to the provisions of sub-paragraph (4) of paragraph 8.
(7) On receipt of the application under sub-paragraph (5), the deposit office shall transfer the amount due and payable, together with the amount of interest accrued, in Account-B to Account-A in the same manner and subject to the same conditions as stipulated in paragraph 7 and thereafter allow the request for withdrawal made by the depositor in the same manner and subject to the same conditions as stipulated in sub-paragraphs (1), (2), (3) and (4).
Explanation : For the removal of doubts, it is hereby clarified that the deposit office shall refuse the depositor to withdraw any amount lying in his account, in case of failure on his part to furnish all the details as required by sub-paragraph (3).
10. Utilisation of the amount of withdrawal - (1) A depositor, withdrawing any amount out of the deposit made in pursuance of sub-section (2) of section 54 or sub-section (2) of section 54B or sub-section (2) of section 54D or sub-section (4) of section 54F or sub-section (2) of section 54G, shall utilise the whole or any part of the amount so withdrawn for the purposes specified in sub-section (1) of the section in relation to which the deposit has been made.
(2) The amount withdrawn shall be utilised by the depositor within sixty days from the date of such withdrawal for the purposes specified in sub-paragraph (1) and the amount or any part thereof which has not been so utilised shall be re-deposited in Account-A immediately thereafter.
11. Nomination by the depositor - (1) A depositor may nominate in Form E or as near thereto as possible, one or more persons but not exceeding three to receive the amount standing to his credit in Account-A or Account-B, as the case may be, in the event of his death before the amount has become payable or having become payable, has not been paid.
(2) No nominations shall be made in respect of an account opened on behalf of a minor or a Hindu undivided family or a firm or a company or an association of persons or a body of individuals.
(3) A nomination made by a depositor may be varied by a fresh nomination in Form F or as near thereto as possible, by giving notice in writing to the deposit office in which the account stands.
(4) Every nomination and every cancellation or variation thereof shall be registered in the deposit office and shall be effective from the date of such registration, the particulars of which in the case of a deposit in Account-A shall be entered in the pass book and in the case of a deposit in Account-B shall be entered in the Deposit receipt, issued by the deposit office.
(5) If the nominee is a minor, the depositor may appoint any person to receive the amount due under the account in the event of the death of the depositor during the minority of the nominee.
(6) Where the nomination is in favour of more than one person, the nominee first named shall alone have the right to receive the amount standing to the credit in the account of the deceased depositor.
(7) Where the nominee first named has predeceased the depositor and depositor has not cancelled the nomination or substituted the nomination, the nominee second named shall be entitled to receive the amount standing to the credit in the account of the deceased depositor and so on in respect of other successive nominees :
Provided that if any nominee is dead, the surviving nominee or nominees shall, in addition to the proof of death of the depositor also furnish proof of death of the deceased nominee or nominees, as the case may be.
12. Charge of alienation - The amount standing to the credit of any depositor in any account shall not be placed or offered by him as security for any loan or guarantee and shall not be charged or alienated in any manner whatsoever.
13. Closure of the account - (1) If a depositor desires to close his account, an application shall be made with the approval of the Assessing Officer who has jurisdiction over the depositor to the deposit office in Form G or as near thereto as possible, and the deposit office shall pay the amount of balance including interest accrued, to the credit in the account of the depositor by means of crediting such amount to any bank account of the depositor.
(2) If a depositor in respect of whose deposit account a nomination is in force, dies, the nominee, if he desires to close the account or accounts and obtain the payment of the balance standing to the credit in the account of the deceased depositor, shall make an application to the deposit office in Form H or as near thereto as possible with the approval of the Assessing Officer who has jurisdiction over the deceased depositor, and the deposit office shall pay the amount of balance, standing to the credit in the account of the deceased depositor including amount of interest accrued, by means of crediting such amount to any bank account of the nominee.
(3) If a depositor, in respect of whose deposit no nomination is in force, the legal heir of the deceased depositor shall make an application to the deposit office in Form H or as near thereto as possible, with the approval of the Assessing Officer who has jurisdiction over the deceased depositor, and the deposit office shall pay the balance standing to the credit in the account of the deceased depositor including the amount of interest accrued, by means of crediting such amount to any bank account of the legal heir:
Provided that where there are more than one legal heir of the deceased depositor, the legal heir making the claim individually may do so by producing the letter of disclaimer or letter of authorisation from other legal heirs in his favour :
Provided further that before granting the approval for closure of the account under this sub-paragraph, the Assessing Officer shall obtain from the legal heir a succession certificate issued under Part V of the Indian Succession Act, 1925, or a probate of the will of the deceased depositor, if any, or letter of administration to the estate of the deceased in case there is no will in order to verify the claim of such legal heir to the account of the deceased depositor.
(4) The depositor or the nominee or the legal heir, in order to obtain payment of the amount standing to the credit in the account shall, while applying in Form G or Form H, also submit the pass book of Account-A or Deposit receipt of Account-B, as the case may be, to the deposit office.
(5) The payment made by the deposit office to the depositor or the nominee or the legal heir in accordance with the provisions of this paragraph shall constitute a full discharge to the deposit office of its liability in respect of the deposit.
(6) Nothing contained in this paragraph or in paragraph 11 shall affect the right or claim which any person may have against the person to whom any payment is made under this paragraph.
I am also sending you the abstract of recent judgments-
SECTION 54
CAPITAL GAINS - EXEMPTION QUA RESIDENTIAL HOUSE [SEC. 54]
APPLICABILITY
Exemption is allowable in full even if house is partly purchased and partly constructed - The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is partly constructed or partly purchased - B.B. Sarkar v. CIT [1981] 132 ITR 150 (Cal.).
When more than one house is purchased - In case the assessee has purchased more than one house/flat within the period prescribed in section 54, it is for the assessee to claim relief against the purchase of any one of the house/flat provided the other conditions mentioned in the section are satisfied - K.C. Kaushik v. P.B. Rane, ITO [1990] 84 CTR (Bom.) 62.
CONSTRUCTION OF NEW HOUSE
Construction cannot precede sale of old house - To claim exemption under section 54, the construction of the new house should be within two years after the transfer of the existing house. The exemption is not available where the new construction is made before the transfer or sale of the existing house - Smt. Shantaben P. Gandhi v. CIT [1981] 129 ITR 218 (Guj.).
(Contra)
Exemption on capital gains could not be refused to the assessee simply on the ground that the construction of the new house had begun before the sale of the old house - CIT v. H.K. Kapoor [1998] 150 CTR (All.) 128.
The date of commencement of the construction of the new house is not material. To get the benefit of section 54, the assessee must have constructed the new house within the prescribed period from the date of sale of the old house - CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571 (Kar.).
Flats purchased under SFS - As per CBDT Circular No. 471, dated 15-10-1986, cases of allotment of flats under the self-financing scheme of the Delhi Development Authority shall be treated as cases of construction for the purpose of capital gains and therefore, investment of capital gain in purchase of DDA Flat in the form of first instalment of price of flat within two years of sale of original property would entitle assessee to claim exemption in respect of capital gain even though construction of flat was not complete in two years - Smt. Shashi Varma v. CIT [1997] 224 ITR 106 (MP)/CIT v. Smt. Brinda Kumari [2001] 114 Taxman 266 (Delhi).
Assessee need not necessarily himself construct new house - The purpose behind the exemption under section 54(1) is that if any assessee sells his residential house and purchases a new house against the sale consideration, the capital gains arising out of the sale of the earlier house should not be taxed. Whether the assessee himself constructs the house or he gets it constructed by a contractor or a third party does not make any difference. The basic requirement for the purpose of relief under section 54(1) is that the assessee should invest the sale proceeds in the construction of a residential house, which has been constructed for the assessee. Thus, where the assessee sold a flat, and within two years entered into an agreement for the purchase of a new flat which was under construction, and paid the amounts in instalments within three years of the sale of the earlier flat, exemption is admissible - CIT v. Smt. Bharati C. Kothari [2000] 244 ITR 352 (Cal.).
PURCHASE OF NEW HOUSE
Date of purchase - For the purpose of section 54, the date of agreement to purchase should be taken as the date of purchase and the date of registration of sale deed for purchase is not relevant - CIT v. R.L. Sood [2000] 108 Taxman 227/245 ITR 727 (Delhi).
Purchase need not necessarily be on ‘cash and carry’ basis - The word ‘purchase’ in section 54 must be interpreted in its ordinary meaning, as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration. There is no stress in the section on ‘cash and carry’. Thus, where the eldest brother in a coparcenary comprising four brothers sold his own house and acquired the common house from his three brothers who executed release deeds for a consideration, there was a ‘purchase’ by the eldest brother of the share of each of the brothers for a price - CIT v. T.N. Aravinda Reddy [1979] 1 Taxman 40 (AP)/120 ITR 46 (SC).
‘Purchase’ does not mean that the new house must be registered in assessee’s name - For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property purchased. The word ‘purchase’ occurring in section 54(1) has to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Therefore, for the purpose of applicability of section 54, registration of the document is not imperative - Balraj v. CIT [2002] 123 Taxman 290/254 ITR 22 (Delhi).
Holding of legal title within prescribed time is not a pre-condition - Taking into consideration the letter as well as the spirit of section 54 and the word ‘towards’ used before the word ‘purchase’ in section 54(2), it seems that the word ‘purchase’ is not used in the sense of legal transfer and therefore, the holding of a legal title within a period of one year is not a condition precedent for attracting section 54 - CIT v. Dr. Laxmichand Narpal Nagda [1995] 211 ITR 804 (Bom.).
Date of taking possession relevant for computing time-limit - Date of taking over possession of property purchased, and not the date of registration of sale in favour of the assessee, is relevant for computing the prescribed time-limit - CIT v. Mrs. Shahzada Begum [1988] 173 ITR 397 (AP).
COMPUTATION OF DEDUCTION
Where investment in new house has not taken place in the year of transfer of old house, capital gains can be taxed only in the year in which time limits for making such investment expire - The application of the special provisions contained in clauses (i) and (ii) of section 54(1) does not depend on any election by the assessee and operates in all cases falling within section 54(1). The provisions of section 54(1) will prevail over the deeming fiction of section 45 which treats capital gain as the deemed income of the previous year. Therefore, the assessee cannot be subjected to pay income-tax on his capital gain until the expiry of the outer limit of one year or two years as the case may be, at the end of which alone it could be possible to compute difference between the amount of capital gain and the cost of the new asset and it is at this stage that the question of charging such difference under section 45 as income of the previous year can arise. It would be in consonance with section 54(1) if, instead of charging capital gain to income-tax in the previous year in which transfer of original asset took place, the ITO waits till the outer period of one year or two years as the case may be is over when he can work out the difference for charging it as income of the previous year, unless there is a communication on record that the event of such purchase or construction is not to take place or that it has already taken place during the assessment proceedings. If there is such a communication on record, the ITO can make the necessary adjustments and bring the capital gain to tax in the year of transfer of original asset itself without waiting for the expiry of the prescribed time limits of one year or two years. In such cases also, if the assessee purchases a new asset within one year or constructs a new asset within two years, the ITO is bound to amend the order of assessment so as to exclude the amount of capital gain not chargeable to tax under section 54(1) as laid down in section 155(8) - Harsutrai J. Raval v. CIT [2002] 122 Taxman 165/255 ITR 315 (Guj.).
Capital gains account scheme - For transfer of deposit under Capital Gains Accounts Scheme, 1988 from Account ‘B’ to Account ‘A’, clearance of Assessing Officer is not required - Sadula Janardhan (HUF) v. State Bank of Hyderabad [2006] 286 ITR 291 (AP).
SECTION 54
CAPITAL GAINS - EXEMPTION QUA RESIDENTIAL HOUSE [SEC. 54]
APPLICABILITY
Firm, whether entitled to exemption - A firm is not entitled to exemption under section 54 - CIT v. K. Gangiah Chetty & Sons [1995] 214 ITR 548 (Mad.).
When the partners used the property prior to the dissolution of the firm for their residence, it must be held that they were owners of the property and they were using the property in their own right for the purpose of residence - CIT v. M.K. Chandrakanth [2002] 125 Taxman 932/258 ITR 14 (Mad.).
Tax authorities must determine extent of appurtenant land - The expression ‘land appurtenant thereto’ under section 54 has also a secondary meaning as equivalent to ‘usually enjoyed or occupied with’. There is no indication that the Legislature used the above expression in section 54 limiting its sense and meaning artificially to any particular extent.
The expression is used in section 54 in a wider sense. It is, therefore, imperative that the tax authorities will have to determine the extent of land appurtenant to a building transferred, taking into consideration a variety of circumstances that may be relevant for the purpose. It is not possible to lay down infallible tests to be applied for the determination of the extent of land appurtenant to a building, as the tests vary depending upon the facts and attendant circumstances of each case - CIT v. Zaibunnisa Begum [1985] 151 ITR 320 (AP).
Where entire extent of land adjoining residence was used as pathways, servant quarters, etc., entire land was to be treated as land appurtenant to building - CIT v. Smt. M. Kalpagam [1997] 227 ITR 733/93 Taxman 283 (Mad.).
Exemption is allowable in full even if house is partly purchased and partly constructed - The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is partly constructed or partly purchased - B.B. Sarkar v. CIT [1981] 132 ITR 150 (Cal.).
When more than one house is purchased - In case the assessee has purchased more than one house/flat within the period prescribed in section 54, it is for the assessee to claim relief against the purchase of any one of the house/flat provided the other conditions mentioned in the section are satisfied - K.C. Kaushik v. P.B. Rane, ITO [1990] 84 CTR (Bom.) 62.
Exemption is allowable even if a share in new property is purchased - When the Act enables an assessee to get exemption from payment of tax in respect of purchase or construction of a residential house, purchase or construction of a portion of the house should also enable the assessee to claim the exemption. It is possible that a person may not be in a position to purchase the whole residential house at a time and in the circumstances an assessee might purchase a portion of the house or some interest in the house. Thus, where the assessee sold a house and from the sale proceeds purchased 15 per cent undivided share in a house property from her husband and her son, and she was earlier residing in that house, exemption under section 54 can be allowed - CIT v. Chandanben Maganlal [2000] 245 ITR 182 (Guj.).
* SCOPE OF THE TERM ‘RESIDENTIAL BUILDING’ - The language of section 53 comprehends that the assets transferred should be predominantly residential building and may have land appurtenant thereto, and not that it be a open plot of land, having some insignificant structure, which might under some constraints be used for residence, or which might be actually used by some employee as a person taking care of the plot. The purpose of section 53 was not to entirely exempt the long-term capital gain, derived from the residential building. The purpose of provisions of section 53 clearly is to provide relief to the assessee, who might like to shift residence from one place to another may be for variety of reasons, as may be thought proper by the assessee, and which need not be put in any strait-jacket formulae. It is not intended to provide exemption to the assessee, who is residing somewhere else, and acquires some other residential building, retains it, so as to allow it to become long-term asset, and then sell it. Thus, a plot of land, having a boundary wall and a garage-cum-room constructed thereon cannot be treated as a ‘residential house’ for purpose of allowing exemption under section 53 in respect thereof - Rajesh Surana v. CIT [2008] 306 ITR 368 (Raj.).
The context in which the expression ‘a residential house’ is used in section 54 makes it clear that it was not the intention of the legislation to convey the meaning that it refers to a single residential house. If that was the intention, they would have used the word ‘one’. As in the earlier part, the words used are buildings or lands which are plural in number and that is referred to as ‘a residential house’, the original asset, an asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, which also should be ‘a residential house’. Therefore, the letter ‘a’ in the context it is used should not be construed as meaning ‘singular’. But, being an indefinite article, the said expression should be read in consonance with the other words ‘buildings’ and ‘lands’ and, therefore, the singular ‘a residential house’ also permits use of plural by virtue of section 13(2) of the General Clauses Act. - CIT v. Smt. K.G. Rukumini Amma [2011] 96 Taxman 87 (Kar.).
Where assessee had a residential property on a site - Under a joint development agreement, she gave that property to a builder for putting up flats and under agreement, eight residential flats were to be put up on that property and four flats representing 48 per cent was share of assessee and remaining 52 per cent representing another four flats was share of builder and thus, consideration for selling 52 per cent of site was four residential flats representing 48 per cent, for purpose of section 54, four residential flats acquired by assessee could not be construed as four residential houses but only as ‘a residential house’ and, therefore, assessee was entitled to benefit under section 54 in respect of entire value of four flats - CIT v. Smt. K.G. Rukumini Amma [2011] 196 Taxman 87 (Kar.).
CONSTRUCTION OF NEW HOUSE
Construction cannot precede sale of old house - To claim exemption under section 54, the construction of the new house should be within two years after the transfer of the existing house. The exemption is not available where the new construction is made before the transfer or sale of the existing house - Smt. Shantaben P. Gandhi v. CIT [1981] 129 ITR 218 (Guj.).
(Contra)
Exemption on capital gains could not be refused to the assessee simply on the ground that the construction of the new house had begun before the sale of the old house - CIT v. H.K. Kapoor [1998] 150 CTR (All.) 128.
The date of commencement of the construction of the new house is not material. To get the benefit of section 54, the assessee must have constructed the new house within the prescribed period from the date of sale of the old house - CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571 (Kar.).
Flats purchased under SFS - As per CBDT Circular No. 471, dated 15-10-1986, cases of allotment of flats under the self-financing scheme of the Delhi Development Authority shall be treated as cases of construction for the purpose of capital gains and therefore, investment of capital gain in purchase of DDA Flat in the form of first instalment of price of flat within two years of sale of original property would entitle assessee to claim exemption in respect of capital gain even though construction of flat was not complete in two years - Smt. Shashi Varma v. CIT [1997] 224 ITR 106 (MP)/CIT v. Smt. Brinda Kumari [2001] 114 Taxman 266 (Delhi).
Assessee need not necessarily himself construct new house - The purpose behind the exemption under section 54(1) is that if any assessee sells his residential house and purchases a new house against the sale consideration, the capital gains arising out of the sale of the earlier house should not be taxed. Whether the assessee himself constructs the house or he gets it constructed by a contractor or a third party does not make any difference. The basic requirement for the purpose of relief under section 54(1) is that the assessee should invest the sale proceeds in the construction of a residential house, which has been constructed for the assessee. Thus, where the assessee sold a flat, and within two years entered into an agreement for the purchase of a new flat which was under construction, and paid the amounts in instalments within three years of the sale of the earlier flat, exemption is admissible - CIT v. Smt. Bharati C. Kothari [2000] 244 ITR 352 (Cal.).
PURCHASE OF NEW HOUSE
Date of purchase - For the purpose of section 54, the date of agreement to purchase should be taken as the date of purchase and the date of registration of sale deed for purchase is not relevant - CIT v. R.L. Sood [2000] 108 Taxman 227/245 ITR 727 (Delhi).
Purchase need not necessarily be on ‘cash and carry’ basis - The word ‘purchase’ in section 54 must be interpreted in its ordinary meaning, as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration. There is no stress in the section on ‘cash and carry’. Thus, where the eldest brother in a coparcenary comprising four brothers sold his own house and acquired the common house from his three brothers who executed release deeds for a consideration, there was a ‘purchase’ by the eldest brother of the share of each of the brothers for a price - CIT v. T.N. Aravinda Reddy [1979] 1 Taxman 40 (AP)/120 ITR 46 (SC).
‘Purchase’ does not mean that the new house must be registered in assessee’s name - For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property purchased. The word ‘purchase’ occurring in section 54(1) has to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Therefore, for the purpose of applicability of section 54, registration of the document is not imperative - Balraj v. CIT [2002] 123 Taxman 290/254 ITR 22 (Delhi).
Holding of legal title within prescribed time is not a pre-condition - Taking into consideration the letter as well as the spirit of section 54 and the word ‘towards’ used before the word ‘purchase’ in section 54(2), it seems that the word ‘purchase’ is not used in the sense of legal transfer and therefore, the holding of a legal title within a period of one year is not a condition precedent for attracting section 54 - CIT v. Dr. Laxmichand Narpal Nagda [1995] 211 ITR 804 (Bom.).
Date of taking possession relevant for computing time-limit - Date of taking over possession of property purchased, and not the date of registration of sale in favour of the assessee, is relevant for computing the prescribed time-limit - CIT v. Mrs. Shahzada Begum [1988] 173 ITR 397 (AP).
Purchase of portion of self-occupied house is also eligible for exemption - Section 54 nowhere states that a residential house which is purchased by the assessee so as to avail the exemption should not be the one in which the assessee was residing. One cannot argue that assessee is not entitled to exemption under section 54 merely because the assessee was residing in the house which was purchased by him.
Thus, where the assessee sold a house property owned by her and out of the sale proceeds purchased 15 per cent share in another house property owned by her husband and son, exemption was allowable even though the assessee was residing in the said house prior to purchase, and continued to reside in the same house after purchase - CIT v. Chandanben Maganlal [2002] 120 Taxman 38 (Guj.).
Purchase of two flats converted into one residential unit - The contention that the phrase ‘a residential house’ in section 54 would mean one residential house does not appear to be the correct understanding. The expression ‘a residential house’ should be understood in a sense that building should be of residential in nature and ‘a’ should not be understood to indicate a singular number. When a Hindu undivided family’s residential house is sold, to say that the capital gain should be invested for the purchase of only one residential house is an incorrect proposition. After all, the Hindu undivided family property is held by the members as joint tenants. If the members keeping in view the future needs in event of separation, purchase more than one residential building, it cannot be said that the benefit of exemption is to be denied under section 54(1).
Where assessee HUF purchased two residential flats adjacent to each other on same day by two separate registered deeds and vendor had certified that he had effected necessary modifications to two flats to make them one residential apartment, assessee’s claim for exemption could not be denied on ground that section 54(1) does not permit exemption for purchasers for more than one residential premises - CIT v. D. Ananda Basappa [2009] 180 Taxman 4/309 ITR 329 (Kar.).
COMPUTATION OF DEDUCTION
Where investment in new house has not taken place in the year of transfer of old house, capital gains can be taxed only in the year in which time limits for making such investment expire - The application of the special provisions contained in clauses (i) and (ii) of section 54(1) does not depend on any election by the assessee and operates in all cases falling within section 54(1). The provisions of section 54(1) will prevail over the deeming fiction of section 45 which treats capital gain as the deemed income of the previous year. Therefore, the assessee cannot be subjected to pay income-tax on his capital gain until the expiry of the outer limit of one year or two years as the case may be, at the end of which alone it could be possible to compute difference between the amount of capital gain and the cost of the new asset and it is at this stage that the question of charging such difference under section 45 as income of the previous year can arise. It would be in consonance with section 54(1) if, instead of charging capital gain to income-tax in the previous year in which transfer of original asset took place, the ITO waits till the outer period of one year or two years as the case may be is over when he can work out the difference for charging it as income of the previous year, unless there is a communication on record that the event of such purchase or construction is not to take place or that it has already taken place during the assessment proceedings. If there is such a communication on record, the ITO can make the necessary adjustments and bring the capital gain to tax in the year of transfer of original asset itself without waiting for the expiry of the prescribed time limits of one year or two years. In such cases also, if the assessee purchases a new asset within one year or constructs a new asset within two years, the ITO is bound to amend the order of assessment so as to exclude the amount of capital gain not chargeable to tax under section 54(1) as laid down in section 155(8) - Harsutrai J. Raval v. CIT [2002] 122 Taxman 165/255 ITR 315 (Guj.).
Capital gains account scheme - For transfer of deposit under Capital Gains Accounts Scheme, 1988 from Account ‘B’ to Account ‘A’, clearance of Assessing Officer is not required - Sadula Janardhan (HUF) v. State Bank of Hyderabad [2006] 286 ITR 291 (AP).
26. Jagan Nath Singh Lodha v. ITO (2004) 85 TTJ(Jodh.)173.
Failure to invest unutilized amount of capital gain in Capital
Gains Account Scheme, where such failure was unintentional
and for reasons beyond assessee’s control, would not disentitle
assessee to claim of exemption.
T.V. Sundaram Iyengar & Sons Ltd. v. CIT (1959) 37 ITR 26 (Mad.)
Capital gains tax is payable in year in which assessee has acquired a right to receive profits, and its actual receipt in that year is not necessary.
B.B. Sarkar v. CIT (1981) 132 ITR 150 (Cal.)
Where assessee spent capital gains partly for purchase of another house and partly for further construction on it, he would still be entitled to exemption under section 54.
No exemption under section 54 if land only is sold: The house property
concerned must be building or land appurtenant to building. The basic test
was whether the land appurtenant to building could be used independent of
the user of the building. If so, it cannot be said to be land appurtenant to
building. Further, the basic requirement is that the capital gain should arise
from the transfer of building or land, the income of which is chargeable under the head Income from house property. If the land alone is sold, the provisions of section 54 will have no application inasmuch as the income from land is not chargeable under the head Income from house property. [CIT v Zaibunnisa Begum (1985) 151 ITR 320 (AP)].
(5) Successor is entitled to benefit of exemption in case of death of the
assessee: In case of assessee's death during the stipulated period, benefit of exemption under section 54(1) is available to legal representative if the
required conditions are satisfied by the legal representative. [Ramanathan
(CV) v CIT (1980) 155 ITR 191 (Mad)].
(6) Purchase of limited interest in the house eligible for exemption under section 54: Where an assessee had sold the residential house and acquired only 15% interest in another house and such other house was already used forresidence prior to purchase, it was held that the benefit should be available to the assessee. [CIT v Chandaben Maganlal (2000) 245 ITR 182 (Guj)]. Incoming to the conclusion, the High Court followed its own earlier decision in CIT v Tikyomal Jasanmal (1971) 82 ITR 95 (Guj). In that case, what was purchased was a unit of house property, while in the present case before the High Court, it was a limited interest in the property.
(7) Construction in another property not eligible for exemption: An assessee gifted some land to his wife. He, thereafter constructed a building on the said land. The Government acquired the land and building and paid compensation for land to the wife and for the building to the assessee (husband). It was held that capital gain on land was assessable in the hands of the husband by virtue of section 64 but he was not entitled to exemption under section 54 in respect of capital gain on the acquisition of the land of the wife as the capital gain to the wife did not arise on transfer of a residential house. [T.N. Vasavan v CIT (1992) 197 ITR 163 (Ker)].
(9) There can be both purchase and construction: Where the assessee had partly invested the capital gains on the purchase of another house and partly on the construction of additional floor to the house so purchased within the prescribed time limit, it was held that the Income-tax Officer was not justified in restricting exemption to investment on purchase only, holding that the exemption under section 54 was admissible either for purchase or for construction but not for both. [Sarkar (B.B.) v CIT (1981) 132 ITR 661 (Del)].
(10) Construction can start before the sale of asset: The construction of the new house may start before the date of transfer, but it should be completed after the date of transfer of the original house. [CIT v J.R. Subramanya Bhat (1987)165 ITR 571 (Karn)]. The very fact that purchase of another house as also the construction can take place before the sale means that cost of purchase or new construction need not flow from the sale proceeds of the old property. [CIT v H.K. Kapoor (Decd) 1998 234 ITR 753 (All) and CIT v M. Vasudevan Chettiar (1998) 234 ITR 705 (Mad)].
(11) Allotment of a flat by DDA under the Self-Financing Scheme shall be treated as construction of the house [Circular No. 471, dated 15-10-1986]. Similarly,allotment of a flat or a house by a cooperative society, of which the assesseeis the member, is also treated as construction of the house [Circular No. 672, dated 16-12-1993]. Further, in these cases, the assessee shall be entitled to claim exemption in respect of capital gains even though the construction is not completed within the statutory time limit. [Sashi Varma v CIT (1997) 224 ITR 106 (MP)]. Delhi High Court has applied the same analogy where the assessee made substantial payment within the prescribed time and thus acquired substantial domain over the property, although the builder failed to hand over the possession within the stipulated period. [CIT v R.C. Sood (2000) 108 Taxman 227 (Del)].
(12) As per a circular of CBDT, the cost of the land is an integral part of the cost of the residential house, whether purchased or constructed. [Circular No. 667 dated 18-10-1993].
(13) Where an assessee who owned a house property, sold the same and
purchased another property in the name of his wife, exemption under section 54 shall be allowable. [CIT v V. Natarajan (2006) 154 Taxman 399 (Mad)].
(14) Where the assessee utilised the sale consideration for other purposes and borrowed the money for the purpose of purchasing the residential house property to claim exemption under section 54, it was held that the contention that the same amount should have been utilised for the acquisition of new asset could not be accepted. [Bombay Housing Corporation v Asst. CIT Devarajalu (G.K.)(1991) 191 ITR 211 (Mad)].
(C) Capital gain on transfer of long-term capital assets not to be charged on investment in certain bonds [Section 54EC]: Any long-term capital gain, arising to any assessee, from the transfer of any capital asset on or after 1-4-2000 shall be exempt to the extent such capital gain is invested within a period of 6 months after the date of such transfer in the long-term specified asset provided such specified asset is not transferred or converted into money within a period of 3 years from the date of its acquisition.
(D) Capital Gain on transfer of asset, other than a residential house
[Section 54F]: Any long-term capital gain, arising to an individual or HUF, from the transfer of any capital asset, other than residential house property, shall be exempt in full, if the entire net sales consideration is invested in purchase of one residential house within one year before or two years after the date of transfer of such an asset or in the construction of one residential house within three years after the date of such transfer. Where part of the net sales consideration is invested, it will be exempt proportionately.
The above exemption shall be available only when the assessee does not own more than one residential house property on the date of transfer of such asset exclusive of the one which he has bought for claiming exemption under section 54F.
Section 54 and 54F are comparable in many respects. Hence, the law and
precedents relating to section 54 as to whether the house property on which investment is made is residential or not, the law relating to time limits, the precedent that construction could start earlier though completed within three years are all equally applicable for section 54F. Hence, for judicial decisions for section 54F, refer to the judicial decisions given under section 54.
There is lot that can help
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Hello Pankaj Ji,
Wether exemption provided u/s54EC in respect of Bonds are also for HUF's or not
@Anish
Section 54EC would be applicable for HUF also.
can i sale industrial property amount pay to my home loan amount.
@Rajesh
If you sell your industrial property, you would need to pay income tax on short/term gains from it. After paying taxes, you can use it wherever you want.
In order to save tax on this property sale, one can buy residential house property or invest into capital gain bonds.
If you have got possession of your home within one year before industrial plot sale, you can also get benefit u/s 54F.
Hi,
Any effect to sale of properties for retail investor in union budget 2012?
Regards
RG
@RG
TDS @ 1% would be deducted in case property price is more than 50 lakh in urban areas.
Hi,
When you buy a new residential flat from builder? What can be considered as a purchase price?
- money paid to builder
OR
- Money paid to builder + society charges + electricity charges + stamp duty + registration
Regards
RG
@RG
Purchase price would include stamp duty and registration charges also apart from money paid to builder.
Society and electricity charges won't be included.
Hi, Can real estate agent's commision be included in purchase or sale price
- RG
@RG
Yes, brokerage paid to agent can be included in sale and purchase price. You should have receipt for same.
To save income tax on long term capital gains,arising from sale of property, would purchase of 2 or 3 flats be eligible. Or can we purchase one floor compromising 4 to 5 flats in one single registration if the builder agrees.
@Darshan
Only one flat purchase can be considered for saving tax from capital gains u/s 54/54F.
You can buy one floor having 4-5 flats in single registration as in that case it would be assumed as single property.
the builder is willing to sell 4 flats in one floor and one flat is top of that floor which he says he will show as interconnected. Will that be eligible for exemption.
@Darshan
If on registration documents, its shown as a single unit then exemption can be claimed for whole unit.
If the individual selling LTCG during the year proceeding is more than 50 lacs whether he required to obtain permission from Income Tax authority, if yes then under which section and How to apply? What is the time limit? Secondly who will apply for either Seller or Buyer or both separately to register the agreement.
@Prakash
We did not understand your question fully. Can you please explain it further.
Dear Sir,
I m a regular taxpayer, I want to sell my Mumbai base property in the current Financial Year Value of property is more than 50 Lacs should I obtain any permission from Income Tax. If yes, then explain me the procedure. Secondly who will obtain permission (Buyer or Seller)
@Prakash
No permission is required from income tax department for selling/buying of a property.
I am having a LTCG of Rs 8 lakhs ( net sale value is 20 lakhs ) by selling a plot of land . One month before selling I had purchased a flat for Rs 22 lakhs ( home loan of Rs 14 lakh and rest savings ) . Kindly let me know about the tax to be paid , if any . Thanks
@S S Alok
If you did not owned more than one residential property at the time of selling plot, then you would be eligible for tax benefit u/s 54F.
As a flat has been bought within one year before plot sale for amount more than sale consideration, no income would be payable u/s 54F.
Hi Pankaj,
I have to sell a residential property which is jointly owned by my father and myself. This comes under long term capital gain. I have following two questions:
1. Is there any law on how much amount should be given to each owner or is this solely dependent on the agreement between buyer and seller?
2. If the sale amount is equally and separately paid to my father and myself, and later my father gives the entire amount to me, can I invest the complete amount in some other property just on my name? Would my father need to pay any tax from the capital gain as he would not invest the money directly into any other property but give the money to me.
Thanks in advance
Rohit
@Rohit
1. Long term gains would be shared between owners in same ration in which they own the property. In case ratio is not mentioned in existing registration documents, it would be assumed as equal share of all owners.
2. Your father can gift the whole amount to you but this won't save income tax on his part of capital gains. He would have to pay income tax on capital gains.
Hi Pankaj,
Many thanks for your response earlier on the below mentioned queries.
Further to this, could you please advise how can I save the tax on the long term capital gain. I know that this can be saved through investment in a residential property or construction of a house. My query is whether this residential property can just be a residential plot?
Also, what would be the best way to save capital gain received by my father (farmer by profession) and how can he transfer the capital gain to me in future?
Thanks in advance
Rohit
Pankaj Batra says:
@Rohit
1. Long term gains would be shared between owners in same ration in which they own the property. In case ratio is not mentioned in existing registration documents, it would be assumed as equal share of all owners.
2. Your father can gift the whole amount to you but this won’t save income tax on his part of capital gains. He would have to pay income tax on capital gains.
Rohit says:
Hi Pankaj,
I have to sell a residential property which is jointly owned by my father and myself. This comes under long term capital gain. I have following two questions:
1. Is there any law on how much amount should be given to each owner or is this solely dependent on the agreement between buyer and seller?
2. If the sale amount is equally and separately paid to my father and myself, and later my father gives the entire amount to me, can I invest the complete amount in some other property just on my name? Would my father need to pay any tax from the capital gain as he would not invest the money directly into any other property but give the money to me.
Thanks in advance
Rohit
@Rohit
New property purchased can be a residential plot, but to avail tax benefit on same, a house must be constructed on this within three years of sale.
Your father can save income tax by either investing into capital gain bonds or by buying/constructing residential house property. You may buy a new property in joint name with your father and later your father can transfer back his share through family settlement deed or gift deed.