income tax-capt gains
This query is : Resolved
18 February 2010
This case pertains to an assessee who is a senior citizen.
The facts of the case are as follows:
The assessee owns a residential house property in a building.The assessee has signed an agreement on 29th September,2009 for demolition of her residential premises and re-construction by builder in which she would get a new flat.The process is commonly known as Redevelopment of Property. As corpus,the assessee gets Rs.10 lacs. The above sum is for the purpose of meeting the increased future maintainance expenses of her residential premises. The maintainance exps increase after the building is re-constructed with more no. of flats.However,the agreement does not specify the purpose and the language used in the agreement is that the society is getting “X” amount as corpus which will be distributed between the members in the proportion of the area held by them.
There are few issues which require clarification
1) Whether the amount received as corpus can be :
a) Deposited in REC/NHAI bonds for 3 years and deduction u/s 54 can be claimed?
b) A residential or commercial property can be acquired and deduction us/ 54 can be claimed?
2) Till which date the assessee is required to deposit the amount in these bonds to claim the exemption?
3) If the assessee has received Rs. 5.00 lacs during the current P.Y, then, whether the entire sum of Rs. 10 lacs will be brought to tax as income of the P.Y 2009-10 or only Rs. 5.00 lacs will be treated as income?
4) Also, the assessee needs clarification if she can use the basic exemption limit of Rs.2.40 lacs + Rs. 1.00 lac for 80C deduction and invest the balance i.e Rs.1.60 lacs in these bonds/house property (5.00 lacs-3.40 lacs) ?
The facts of the case are as follows:
The assessee owns a residential house property in a building.The assessee has signed an agreement on 29th September,2009 for demolition of her residential premises and re-construction by builder in which she would get a new flat.The process is commonly known as Redevelopment of Property. As corpus,the assessee gets Rs.10 lacs. The above sum is for the purpose of meeting the increased future maintainance expenses of her residential premises. The maintainance exps increase after the building is re-constructed with more no. of flats.However,the agreement does not specify the purpose and the language used in the agreement is that the society is getting “X” amount as corpus which will be distributed between the members in the proportion of the area held by them.
There are few issues which require clarification
1) Whether the amount received as corpus can be :
a) Deposited in REC/NHAI bonds for 3 years and deduction u/s 54 can be claimed?
b) A residential or commercial property can be acquired and deduction us/ 54 can be claimed?
2) Till which date the assessee is required to deposit the amount in these bonds to claim the exemption?
3) If the assessee has received Rs. 5.00 lacs during the current P.Y, then, whether the entire sum of Rs. 10 lacs will be brought to tax as income of the P.Y 2009-10 or only Rs. 5.00 lacs will be treated as income?
4) Also, the assessee needs clarification if she can use the basic exemption limit of Rs.2.40 lacs + Rs. 1.00 lac for 80C deduction and invest the balance i.e Rs.1.60 lacs in these bonds/house property (5.00 lacs-3.40 lacs) ?
19 February 2010
Dear Sunia
My answers to your question are as follows :
1)Here I thought that the your client do not want to tax sale proceed by giving name as corpus, but income tax officer will not agree with this, hence you consider this receipt as taxable and claim deduction u/s 54. But you can not claim deduction u/s 54 for commercial property.
2) For bonds it's 6 month from the end of P.Y.
3)You have calculate capital gain on whole sum i.e. Rs.10 lacs, concessional treatment available for only when compensation received from Government.
4) No you can not deposit part of sum
My answers to your question are as follows :
1)Here I thought that the your client do not want to tax sale proceed by giving name as corpus, but income tax officer will not agree with this, hence you consider this receipt as taxable and claim deduction u/s 54. But you can not claim deduction u/s 54 for commercial property.
2) For bonds it's 6 month from the end of P.Y.
3)You have calculate capital gain on whole sum i.e. Rs.10 lacs, concessional treatment available for only when compensation received from Government.
4) No you can not deposit part of sum
25 February 2010
But if the assessee doesn't have the sum of Rs. 10.00 lacs then how is he/she suppose to invest the same ?
31 July 2024
For an assessee who is a senior citizen and involved in the redevelopment of a residential property, several key aspects of the Income Tax Act come into play, particularly related to capital gains and exemptions under Section 54. Here’s a detailed explanation based on the facts provided:
### **1. Treatment of Amount Received as Corpus**
#### **a) Investment in REC/NHAI Bonds (Section 54EC)**
- **Eligibility:** Under Section 54EC, if the capital gains arising from the transfer of a capital asset are invested in specified bonds (such as REC or NHAI bonds) within six months of the date of transfer, the capital gains can be exempt from tax.
- **Applicability:** If the Rs. 10 lacs received as corpus is treated as capital gains, it could potentially be invested in these bonds to claim exemption. However, since the corpus is received for future maintenance and is not directly linked to the sale of property, the direct applicability of Section 54EC might be limited unless it is deemed as part of the consideration for the transfer.
#### **b) Acquisition of Residential or Commercial Property (Section 54)**
- **Eligibility:** Under Section 54, if you sell a residential property and use the proceeds to purchase a new residential property, the capital gains from the sale can be exempt from tax.
- **Applicability:** If the Rs. 10 lacs corpus is treated as part of the sale consideration, then using it to acquire another residential property could potentially qualify for exemption under Section 54.
### **2. Deposit Timeline for REC/NHAI Bonds**
- **Deadline:** Under Section 54EC, the investment in REC/NHAI bonds must be made within six months from the date of transfer of the asset. If the agreement dates or other specifics align with the transfer of property, this deadline must be adhered to.
### **3. Tax Treatment of Partial Receipt**
- **Pro-rata Taxation:** If Rs. 5 lacs is received in the current financial year, the tax treatment depends on whether the amount received is considered part of the capital gain. Generally, if the amount received is in installments, the taxable amount should align with the receipt. Hence, Rs. 5 lacs received would be considered in the financial year it was received, and the remaining Rs. 5 lacs will be considered in the subsequent year.
### **4. Utilization of Basic Exemption Limit and Deductions**
- **Basic Exemption Limit & Section 80C Deductions:** The basic exemption limit (Rs. 2.40 lacs for the financial year) and Section 80C deductions (up to Rs. 1 lac) are separate from the investment requirements under Section 54 or 54EC. The investments in bonds or property for claiming exemptions are distinct from these deductions.
- **Investment Requirement:** If the entire Rs. 10 lacs is not available, the exemption under Sections 54 or 54EC can only be claimed for the amount invested up to the limit available.
### **Summary of Key Points:**
1. **Investment in Bonds:** If the Rs. 10 lacs corpus is considered as capital gains, it might be eligible for investment in REC/NHAI bonds under Section 54EC. However, this depends on the exact nature of the corpus amount and whether it qualifies as capital gains.
2. **Investment in Property:** If the corpus is considered as part of the consideration from the transfer, investing it in a new residential property could be considered under Section 54.
3. **Receipt Timing:** Tax implications depend on the year in which the corpus is received. If received in installments, each installment could be taxed in the respective financial year.
4. **Deductions and Exemptions:** Basic exemption limits and 80C deductions are independent of Section 54 or 54EC exemptions. Investments should be made based on available capital gains and not mixed with other deductions.
For precise guidance tailored to your specific case, especially considering the complexity of redevelopment agreements, it’s advisable to consult with a tax professional who can assess the detailed facts and circumstances.
### **1. Treatment of Amount Received as Corpus**
#### **a) Investment in REC/NHAI Bonds (Section 54EC)**
- **Eligibility:** Under Section 54EC, if the capital gains arising from the transfer of a capital asset are invested in specified bonds (such as REC or NHAI bonds) within six months of the date of transfer, the capital gains can be exempt from tax.
- **Applicability:** If the Rs. 10 lacs received as corpus is treated as capital gains, it could potentially be invested in these bonds to claim exemption. However, since the corpus is received for future maintenance and is not directly linked to the sale of property, the direct applicability of Section 54EC might be limited unless it is deemed as part of the consideration for the transfer.
#### **b) Acquisition of Residential or Commercial Property (Section 54)**
- **Eligibility:** Under Section 54, if you sell a residential property and use the proceeds to purchase a new residential property, the capital gains from the sale can be exempt from tax.
- **Applicability:** If the Rs. 10 lacs corpus is treated as part of the sale consideration, then using it to acquire another residential property could potentially qualify for exemption under Section 54.
### **2. Deposit Timeline for REC/NHAI Bonds**
- **Deadline:** Under Section 54EC, the investment in REC/NHAI bonds must be made within six months from the date of transfer of the asset. If the agreement dates or other specifics align with the transfer of property, this deadline must be adhered to.
### **3. Tax Treatment of Partial Receipt**
- **Pro-rata Taxation:** If Rs. 5 lacs is received in the current financial year, the tax treatment depends on whether the amount received is considered part of the capital gain. Generally, if the amount received is in installments, the taxable amount should align with the receipt. Hence, Rs. 5 lacs received would be considered in the financial year it was received, and the remaining Rs. 5 lacs will be considered in the subsequent year.
### **4. Utilization of Basic Exemption Limit and Deductions**
- **Basic Exemption Limit & Section 80C Deductions:** The basic exemption limit (Rs. 2.40 lacs for the financial year) and Section 80C deductions (up to Rs. 1 lac) are separate from the investment requirements under Section 54 or 54EC. The investments in bonds or property for claiming exemptions are distinct from these deductions.
- **Investment Requirement:** If the entire Rs. 10 lacs is not available, the exemption under Sections 54 or 54EC can only be claimed for the amount invested up to the limit available.
### **Summary of Key Points:**
1. **Investment in Bonds:** If the Rs. 10 lacs corpus is considered as capital gains, it might be eligible for investment in REC/NHAI bonds under Section 54EC. However, this depends on the exact nature of the corpus amount and whether it qualifies as capital gains.
2. **Investment in Property:** If the corpus is considered as part of the consideration from the transfer, investing it in a new residential property could be considered under Section 54.
3. **Receipt Timing:** Tax implications depend on the year in which the corpus is received. If received in installments, each installment could be taxed in the respective financial year.
4. **Deductions and Exemptions:** Basic exemption limits and 80C deductions are independent of Section 54 or 54EC exemptions. Investments should be made based on available capital gains and not mixed with other deductions.
For precise guidance tailored to your specific case, especially considering the complexity of redevelopment agreements, it’s advisable to consult with a tax professional who can assess the detailed facts and circumstances.
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