Ltcg deduction u/s 54
This query is : Resolved
27 March 2014
Dear Sir,
One of our client have sold home in AY 2012-13 and invested money in another flat, he has given money for bookings. Now today his deal got cancelled.
SO what would be impact ???
If he purchases another home then deduction under section 54 is available or not ??
This is genuine case but as i interpreted the law , as per my view no deduction will be allowed and he have to pay tax on capital gain on which earlier deduction has been taken.
Please guide me.
Thanking you in advance.
If query is not understandable manner, then i will re write it. But please give reply experts.
Best Regards,
CA Ankur Mehta
+91 94283 19758.
One of our client have sold home in AY 2012-13 and invested money in another flat, he has given money for bookings. Now today his deal got cancelled.
SO what would be impact ???
If he purchases another home then deduction under section 54 is available or not ??
This is genuine case but as i interpreted the law , as per my view no deduction will be allowed and he have to pay tax on capital gain on which earlier deduction has been taken.
Please guide me.
Thanking you in advance.
If query is not understandable manner, then i will re write it. But please give reply experts.
Best Regards,
CA Ankur Mehta
+91 94283 19758.
28 March 2014
after selling of house, all selling proceeds not invest as booking amount your client.
where is the money.
if it is deposit in capital gain a/c then client use for construction for 3 years.
if give all amount as booking amount then he have to pay tax.
where is the money.
if it is deposit in capital gain a/c then client use for construction for 3 years.
if give all amount as booking amount then he have to pay tax.
Message likes :
1 times
28 March 2014
after selling of house, all selling proceeds not invest as booking amount your client.
where is the money.
if it is deposit in capital gain a/c then client use for construction for 3 years.
if give all amount as booking amount then he have to pay tax.
where is the money.
if it is deposit in capital gain a/c then client use for construction for 3 years.
if give all amount as booking amount then he have to pay tax.
Message likes :
1 times
04 April 2014
Thanks for your reply.
But isn't it injustice ? Just because of deal could not complete, asses-see have to bear this much tax liability ?
In my client case, he is most genuine person but he have bear this then it is ellogical on my view. What say sir.
But isn't it injustice ? Just because of deal could not complete, asses-see have to bear this much tax liability ?
In my client case, he is most genuine person but he have bear this then it is ellogical on my view. What say sir.
03 August 2024
If a taxpayer has claimed a deduction under Section 54 of the Income Tax Act but subsequently finds that the investment in the new property could not be completed, the tax implications can be challenging. Here's how it generally works:
### **Section 54 Overview:**
**Section 54** provides for the exemption of Long-Term Capital Gains (LTCG) arising from the sale of a residential property, provided the gains are reinvested in another residential property within specified time limits:
- Purchase of a new property within 1 year before or 2 years after the sale.
- Construction of a new property within 3 years from the sale.
### **Scenario:**
1. **Original Claim:**
- Your client sold a residential property in AY 2012-13 and invested the proceeds by booking another flat. They claimed the deduction under Section 54.
2. **Deal Cancellation:**
- If the deal for purchasing the new property gets canceled and the investment could not be completed, the initial claim of exemption under Section 54 could be jeopardized.
### **Implications of Deal Cancellation:**
1. **Taxability of LTCG:**
- Since the exemption under Section 54 was claimed on the assumption that the new property would be purchased or constructed, failing to complete this investment could result in the denial of the exemption. The LTCG claimed as exempt previously may become taxable.
2. **Further Purchase:**
- If your client purchases another residential property within the stipulated time frame, they may still be eligible for Section 54 relief, provided the conditions are met again.
- However, the fact that the initial deal was canceled does not automatically reverse the previously claimed exemption unless the case is re-evaluated by the tax authorities.
3. **Revised Return or Rectification:**
- Your client might need to file a revised return or seek rectification to report the change in circumstances and potentially pay the tax on the capital gains for which the initial exemption was claimed.
### **Legal and Practical Considerations:**
1. **Principle of Tax Fairness:**
- While it may seem unfair, tax laws require compliance with specific conditions to claim exemptions. If those conditions are not met, the exemption may not be available.
2. **Relief and Appeals:**
- Your client may explore avenues such as approaching the Income Tax Appellate Tribunal (ITAT) or seeking relief from the tax authorities if there are genuine circumstances and the inability to complete the purchase was beyond their control.
3. **Documentation and Evidence:**
- Maintaining thorough documentation of the booking, reasons for cancellation, and efforts to complete the purchase can be critical in negotiating with tax authorities or in appeals.
### **Conclusion:**
- **Impact on Tax Liability:** The canceled deal will likely lead to the reversal of the Section 54 exemption and the LTCG previously exempted would become taxable.
- **Further Investment:** A new investment in another residential property might qualify for Section 54, but the initial canceled transaction affects the previous exemption claim.
- **Consult a Professional:** It is advisable to consult a tax professional who can provide guidance based on the specifics of your client's case and explore any possible reliefs or remedies available.
Navigating these complexities can be challenging, but understanding the rules and seeking professional advice can help manage the tax impact effectively.
### **Section 54 Overview:**
**Section 54** provides for the exemption of Long-Term Capital Gains (LTCG) arising from the sale of a residential property, provided the gains are reinvested in another residential property within specified time limits:
- Purchase of a new property within 1 year before or 2 years after the sale.
- Construction of a new property within 3 years from the sale.
### **Scenario:**
1. **Original Claim:**
- Your client sold a residential property in AY 2012-13 and invested the proceeds by booking another flat. They claimed the deduction under Section 54.
2. **Deal Cancellation:**
- If the deal for purchasing the new property gets canceled and the investment could not be completed, the initial claim of exemption under Section 54 could be jeopardized.
### **Implications of Deal Cancellation:**
1. **Taxability of LTCG:**
- Since the exemption under Section 54 was claimed on the assumption that the new property would be purchased or constructed, failing to complete this investment could result in the denial of the exemption. The LTCG claimed as exempt previously may become taxable.
2. **Further Purchase:**
- If your client purchases another residential property within the stipulated time frame, they may still be eligible for Section 54 relief, provided the conditions are met again.
- However, the fact that the initial deal was canceled does not automatically reverse the previously claimed exemption unless the case is re-evaluated by the tax authorities.
3. **Revised Return or Rectification:**
- Your client might need to file a revised return or seek rectification to report the change in circumstances and potentially pay the tax on the capital gains for which the initial exemption was claimed.
### **Legal and Practical Considerations:**
1. **Principle of Tax Fairness:**
- While it may seem unfair, tax laws require compliance with specific conditions to claim exemptions. If those conditions are not met, the exemption may not be available.
2. **Relief and Appeals:**
- Your client may explore avenues such as approaching the Income Tax Appellate Tribunal (ITAT) or seeking relief from the tax authorities if there are genuine circumstances and the inability to complete the purchase was beyond their control.
3. **Documentation and Evidence:**
- Maintaining thorough documentation of the booking, reasons for cancellation, and efforts to complete the purchase can be critical in negotiating with tax authorities or in appeals.
### **Conclusion:**
- **Impact on Tax Liability:** The canceled deal will likely lead to the reversal of the Section 54 exemption and the LTCG previously exempted would become taxable.
- **Further Investment:** A new investment in another residential property might qualify for Section 54, but the initial canceled transaction affects the previous exemption claim.
- **Consult a Professional:** It is advisable to consult a tax professional who can provide guidance based on the specifics of your client's case and explore any possible reliefs or remedies available.
Navigating these complexities can be challenging, but understanding the rules and seeking professional advice can help manage the tax impact effectively.
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