Cap gain tax on sale of hp and how to avail exemption??

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Nupur Sharma (Querist)
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01 May 2014 Hi Everybody,

A friend of mine purchased a flat in the year 2001-02, which he sold off this year on 21.01.2014. The possession of this house was taken by him on 07.06.2001, but the deed was registered on 22.03.2003. The purchase price of house was Rs. 413980 plus stamp duty value Rs. 41400 plus some maintenance work of Rs. 30000. He had cleared all his house loan dues till the date of selling this property i.e. this year.
Now the selling price of property was Rs. 20 Lacs, which he received in 2 installments Rs. 200000 on 27.01.2014 & Rs. 1800000 on 06.03.2014 (which is also the date of sale deed). I have the following queries in this case:-
1. Firstly, what should I take as the cos of Acquisition? As per my understanding 413980 plus 41400 only. The maintenance work is not supported by any documentary proof and it was expenditure on some furnishing and fitting.
2. Second,What date should be taken as the date of acquisition? the date of posession or the date of sale deed? Since both of them happened in 2 different years?
3. Will the receipt after selling the property in 2 installments make any difference? I should take the full value of consideration as Rs. 20 Lacs in the year 2013-14 itself, right?
4. Now my friend also wants to take benefit of exemption from capital gains by investing in another house property. The section applicable would be section 54, if i am not wrong. How can he claim the benefit under this section if he has not yet bought the property?
To put it more clearly, He has capital gains after indexation for FY 2013-14 equal to Rs. 996240 (taking year 2001-02). To avail exemption under sec 54, he must buy new property within 2 years or construct one within 3 years from date of sale. Now, since he has not yet bought any property but intends to do so in future, should he invest in capital gains account with a bank? What amount should he invest in this account? As per my knowledge, Rs. 996240 should only be invested to avail the complete exemption from capital gains. Or should he invest the entire proceeds?

Please do clear the last point of my query. Would be really grateful.

Thanks in advance

Nupur Sharma

Nupur Sharma (Querist)
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01 May 2014 Is there no expert who could comment on this??
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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 Let's address each of your queries regarding the capital gains tax on the sale of the house property and how your friend can avail exemption under Section 54 of the Income Tax Act, 1961.

### 1. Cost of Acquisition:
The cost of acquisition for computing capital gains includes:
- Actual purchase price paid (Rs. 4,13,980)
- Stamp duty paid (Rs. 41,400)

The maintenance work cost of Rs. 30,000 cannot be included since it lacks documentary proof. Therefore, the total cost of acquisition would be Rs. 4,55,380

### 2. Date of Acquisition:
The date of acquisition for taxation purposes is the date on which your friend acquired possession of the property, which is 07.06.2001 in this case. The date of registration (22.03.2003) is relevant for legal purposes but not for calculating capital gains tax.

### 3. Receipt in Installments:
Since your friend received the consideration in two installments in different financial years (Rs. 2,00,000 in January 2014 and Rs. 18,00,000 in March 2014), the entire consideration of Rs. 20,00,000 should be considered for the financial year 2013-14 when the sale deed was executed (06.03.2014).

### 4. Exemption under Section 54:
To claim exemption under Section 54 of the Income Tax Act, your friend can invest the capital gains in another residential property. Here are the details:
- **Amount of Capital Gains:** Rs. 9,96,240 (after indexation)
- **Exemption Limit:** The entire amount of capital gains can be exempted if invested in a new residential property within 2 years from the date of sale or constructed within 3 years.

#### Investment Options:
- **Capital Gains Account Scheme (CGAS):** If your friend has not yet identified a property to invest in, he can deposit the amount of capital gains (Rs. 9,96,240) into a Capital Gains Account Scheme with a bank.
- **Conditions:**
- The amount deposited in CGAS should be utilized for purchasing a residential property within 2 years from the sale date or constructing one within 3 years.
- The entire amount of capital gains (Rs. 9,96,240) should be deposited into the CGAS account to claim complete exemption from capital gains tax.

#### Procedure:
- Your friend should open a CGAS account with a specified bank by filling Form A under the Capital Gains Accounts Scheme, 1988.
- The amount should be deposited before the due date of filing the income tax return (usually July 31st of the assessment year for non-audit cases).

#### Conclusion:
To summarize, your friend should:
- Calculate the capital gains considering the correct cost of acquisition and indexation benefit.
- Consider the entire consideration received in the financial year 2013-14 for tax purposes.
- Deposit the entire capital gains amount of Rs. 9,96,240 into a Capital Gains Account Scheme to avail exemption under Section 54.

It's advisable to consult with a tax advisor or chartered accountant for specific guidance based on the latest tax laws and to ensure compliance with all requirements for claiming exemption under Section 54.

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