Capital gain tax

This query is : Resolved

Dinesh (Querist)
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19 December 2012 Dear Sir,
My Friend's Father has Sold the Land(Forefather Land) in April 2010 for Rs.20 Lac.and deposited the sum of amount in his Son's Account from where they are getting the Interest also from this amount they have purchased a house of Rs.5 Lac
My friend Father Died on 2011.
When my friend got the details that the land sold by his father is not an agricultural land(Because it is under the 8 Km distance from the Town). he is worry of the Capital Gain tax, as my friend don't came under the Tax Slab he has not filed the Income Tax return till now so kindly guide whether my fried can purchase any Agricultural land and the Second Property or anything else from the amount left so that he can Exempt the Capital Gain Tax.

CA Neha Chauhan

CA Neha Chauhan (Expert)
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19 December 2012 As the two years are expired from the date of sale of land, there is no use of money invested in residential house. But he can claim investment of Rs. 5 Lakh which is invested before his father’s death….But I want some clarification from you, If the Grandfather of your friend gifted under will a property to your friend and the new house purchased is on the name of your friend and there is no other residential house then an only then he can claim deduction u/s 54F from the capital gain arise from transfer of Long term Capital Assets and gain arises out of that…
Your friend has still 3 months to file his return of Income arise during the period of 01/04/2010 to 31/03/2011, as belated return for the said period can be filed upto 31/03/2013
Regards,
Neha Chauhan

Dinesh

Dinesh (Querist)
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22 December 2012 Dear Mam,
Thanks for your reply,

i Want to Add below mentioned point to the earlier message posted

Also,
1) The Amount father deposited in friend's account does not belong to Friend,
2) As friend is having Two Brother and One Unmarried Sister, it include their Shares also, and also of his Mother
3) The House Purchase by Father in the name of Friend is only the sole house on friend name

So kindly guide whether he can by new property or Agricultural Land in the name of his Brother of Sister, what else he can do to exempt the Capital Gain Tax.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 Based on the details provided, here are some considerations and options for your friend to potentially exempt the capital gains tax arising from the sale of the land:

### Understanding the Situation:
1. **Sale of Land:**
- The land sold by your friend's father in April 2010 was not agricultural land (since it is within 8 km distance from the town), which means it would be treated as a capital asset.
- The sale proceeds were deposited into your friend's account.

2. **Capital Gains Tax Liability:**
- Capital gains tax would typically apply on the difference between the sale proceeds and the indexed cost of acquisition of the land.
- Since the land was sold in April 2010, the gains would be considered long-term capital gains if the land was held for more than 3 years.

3. **Exemption under Section 54:**
- **Purchase of Residential Property:** Your friend's father used a portion of the sale proceeds to purchase a house worth Rs. 5 lakh. This purchase may qualify for exemption under Section 54 of the Income Tax Act, which allows exemption of capital gains tax if the entire sale proceeds (or capital gains amount) is invested in purchasing another residential property.
- The fact that the house is in your friend's name only is a crucial detail, as typically, exemption under Section 54 requires that the new residential property is purchased or constructed in the name of the taxpayer.

### Options to Consider:
1. **Purchase of Agricultural Land:**
- Your friend cannot directly purchase agricultural land to claim exemption under Section 54. Section 54 specifically allows exemption for investment in another residential property.
- If your friend's brothers or sister or mother (legal heirs) are eligible taxpayers and they receive their shares from the sale proceeds, they could potentially use their share to purchase agricultural land, subject to their tax liabilities.

2. **Other Investments:**
- If your friend's father's estate is distributed among the legal heirs (your friend, brothers, sister, and mother), each can independently decide how to invest their share of the sale proceeds.
- Investments could include purchasing agricultural land by those eligible to claim agricultural land as an exemption under Section 54B (if applicable conditions are met).

3. **Tax Implications:**
- Even if your friend is not currently in the tax slab, filing an income tax return may still be necessary to avail exemptions and benefits under the Income Tax Act.
- Proper documentation and compliance with income tax rules are essential to avoid penalties and ensure smooth transactions.

### Consultation:
It is strongly recommended to consult with a qualified tax advisor or chartered accountant who can:
- Assess the specific details of the transaction and the family's financial situation.
- Provide tailored advice on how each legal heir can optimize their investments to minimize capital gains tax liability.
- Assist in filing income tax returns and ensuring compliance with relevant tax laws.

By taking these steps and seeking professional guidance, your friend can navigate the capital gains tax implications effectively and make informed decisions regarding investments or exemptions available under the Income Tax Act.