My wife has taken 54F exemption in FY 2009-10 for the land cum residence construction which is completing next month, i.e, FY 2012-13.
She intends to gif the property to me after self occuping the house. Yes she is not selling the property.
My queries.
1. Will she loose the benefit of section 54F by gifting or gifting is allowed and all the exemptions are carry forwarded to the person who gets the gift?
2. If I develop the house gifted by my wife through a my own capital gain received from the sale proceeds of a land belonging to me, will I get exemption under Section 54.
Kindly refer or give a link to the relevant clauses or articles in income tax law, showing the same.
11 November 2012
Dear soumitra basu, Kindly make it a point to cross check your opinions or interpretetions from the income tax website before posting here.
The income tax department clearly states as follows.
Transactions not regarded as Transfer
The following, though may fall under the above definition of transfer are to be treated as not transfer for the purpose of computing Capital Gains: i) distribution of capital assets on the total or partial partition of a Hindu Undivided Family; ii) transfer of a capital asset under a gift or will or an irrevocable trust except transfer under a gift or an irrevocable trust, of shares, debentures or warrants allotted by a company to its employees under ‘Employees’ Stock Option Plan or Scheme; iii) transfer of a capital asset by a company to its subsidiary company, if: a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, b) the subsidiary company is an Indian Company c) the capital asset is not transferred as stock-in-trade, and such an exemption exists if: .......
So if my gifts me the property whatever exemptions she carried will also be carried over to me. Isn't it?.
15 November 2012
DEAR MR. MEHARNTH. IT CAN BE SOCIALLY RIGHT THAT YOUR WIFE AND YOU ARE OF SAME FAMILY. BUT LEGALLY BOTH ARE DIFFERENT. SO THE BENEFIT UNDER SECTION 54F CANNOT BE TRANSFERABLE FROM THE HANDS OF YOUR WIFE TO YOU FOR THE REASON THAT SHE GIFTED THE PROPERTY.
Kindly don't give judgements from your point of view, rather take what is relevant from the income tax department, and since we are spouses, the benefit of transfer vide gift is not to be considered as transfer and hence whatever the exemptions or capital gains that she is eligible are also eligible to me. Please consult any of the other experts and reply once your DEAR SURE about your opinion.
17 November 2012
MAY I REQUEST YOU TO GO THROUGH STATUTE BOOK BEFORE ARGUING. SECTION 2(47) OF THE ACT DEFINES TRANSFER. SECTION 54F(3) SPECIFIES THE CONSEQUENCE OF TRANSFER IS MADE. SECTION 49 IS TALKING OF COST WITH REFERENCE TO GIFTED ASSETS. HOPE YOU CAN CLEAR YOUR DOUBTS. LAST BUT NOT THE LEAST, OPINION IS A FORM OF JUDGMENT.
There is a pdf file issued by the income tax department, clearly mentioning that a GIFT / WILL is exempted form BEING TREATED AS TRANSFER. So there is no question of the holding period clause getting lost. Just think,if during the holding period of 3 years the person dies, then the successor by WILL will definitely get transferred the same rights and obligations as his predecessor. Similarly by WILL or by love and affection through GIFT, it is all exempted.
Hope you give reference the exact sentence and line, where the definition says that gift is also included as transfer of a capital asset and revert.
thanks for your time.
yes as you said OPINION IS A FORM OF JUDGEMENT TO THE PERSON GIVING THE OPINION and not as a REAL JUDGEMENT by hearing 2 or more OPINIONS. So JUDGEMENT should be the interpretion, assessment, and conclusion of 2 or more OPINIONS of (say 2 lawyers).
21 November 2012
So many experts hve given their opinion and they are absolutely correct that you will loose the benefit u/s 54F if your wife gives the property to you after availing the exemption u/s 54F before 3 years
It is a pity that you give a expert opinion based on some EXPERT opinions of others. If that is the case then everybody can become an EXPERT.
If you have a relevant citing or a clause or a act stating that my wife will loose the section 54 f benefit, then elaborate or give reference to.
Kindly don't give vague answers and click it to resolved status. My query is genuine and you may clearly mention where my validity is lost or not correct.
That is why this forum is for. Isn't it right mr. agarwal?
22 November 2012
Dear Mr. Meharnath, Please read Section 47 very carefully.
It says, "Nothing contained in Section 45 shall apply to the following TRANSFERS :- ......"
Section 45 is the charging section for capital gain which provides that TRANSFER of a capital asset shall be chargeable to tax under the head Capital Gain.
Provisions of Section 47 are applicable only on the transferor and NOT on the transferee.
Gift is considered as a transfer u/s 2(47). Accordingly capital gain shall arise on gift. This is exactly why Section 47 has been constituted to EXEMPT capital gain on transfer in the hands of the donor.
If gift was not regarded as transfer there was no need for Section 47. Section 47 was inserted to specifically exempt capital gain on gift.
Now further as I have mentioned above Section 47 says, "Nothing contained in Section 45 shall apply to the following TRANSFERS :- ......"
It is applicable ONLY to Section 45 and NOT to other Sections, viz, Section 2(42A) and Section 54.
So, gift will still remain a transfer for the purpose of Section 2(42A) and Section 54F.
Section 54F prohibits TRANSFER of the new asset for a period of 3 years. Transfer here means transfer as defined in Section 2(42A).
Since the asset has been transferred within 3 years the exemption allowed earlier shall be taxable as LTCG.
Note: In case the exemption was availed u/s 54 then there would have been no tax implication.
The exemption was availed u/s 54F, therefore the exemption shall be taxable.
Good to see an expert who is analysing the case based on the sections and interpretation based on the same. Thanks for your analysis.
There are two more further doubts however. Kindly analyse and elaborate on the same.
1. My wife has taken exemption against 54F, and not against section 54 as described by you. So will the same set of rules apply for section 54F as well? She has not even one house in her name as of today.
2. The house construction obligation for claiming of exemption 54F is still on and is due to be completed by January 2013. The exemption was earlier claimed for land only and the house construction is on. Should my wife transfer the asset after fulfilling the requirement of house construction or before that she can gift the property to me.
3. And After receiving the gift from my wife, if I increase the size of the house by contributing my another capital gain on sale of land towards the increasing area of the house construction, will I get exemption against 54F. I have only one other self occupied house, other than the new house which I intend to construct over the gifted land + half constructed house.
Hope I am not confusing you.
It is just that I need to take exemption over the gifted property by my wife vide my own capital gains of land.
22 November 2012
1. I have discussed the implications of Section 54F. The exemption availed by your wife shall be taxable as LTCG in the year of transfer.
2. Section 54F(3) provides that where the NEW ASSET is transferred within 3 years from the date of the CONSTRUCTION, then exemption shall be taxable.
Since construction is not yet completed, one may take a stand that sub-section 3 is NOT applicable since construction is NOT yet complete.
Sub-section 3 will apply only when the construction is complete.
Since the land has been transferred BEFORE completion of the house, exemption allowed earlier shall NOT be taxable.
3. Independent of the above, addition made to an existing house by way of construction is eligible for exemption u/s 54F.
22 November 2012
What you say is true to an extent. In case of construction the exemption is provisionally allowed in the year of transfer of original asset SUBJECT to the condition that the construction is COMPLETED within a period of 3 years.
Now the question arises what will happen if an under construction house is transferred.
On a plain reading of Section 54F, it appears that the assessee transferring the original asset and the assessee constructing the house should be the same. That is the assessee HIMSELF should COMPLETE the construction to avoid taxability of exemption.
So if your wife transfers the under construction house, she has not fulfilled the condition and accordingly exemption shall be taxable.
Further, if she transfers the completed house within 3 years then also exemption shall be taxable.
Note: Although this is in contradiction to my earlier view (exemption not taxable if under construction asset transferred), I feel this one is more appropriate and the earlier is incorrect.
Since as per our discussion and interpretations my wife is likely to loose exemption on transfer, I need one more help from you. I already have a capital gain due to selling of a land. Either I had to exercise the idea we discussed in this forum and came to a conclusion
or
exercise the following option.
Kindly clarify the following for FY 2012-13.
1. Have sold LAND - A (residential land) and claimed 54F exemption on the purchase of aHOUSE - B (Residential NEW house) in the FY 2010-11 (both in the same year). At that time of purchase of HOUSE-B had ONE more house HOUSE - A (OLD HOUSE) only. 2. In the year 2012-13 sold LAND - B (residential land). Can I avail exemption against section 54F for this FY 2012-13, if I proceed and invest the entire sale consideration obtained in the sale of LAND-B, for constructing an apartment unit at the same place of demolishing HOUSE - A (OLD HOUSE). The apartment unit will be completed fully onlyduring the period AUGUST 2013.
Will I get an exemption for this apartment unit that I am construting.
22 November 2012
1. Section 54F clearly provides that if the assessee constructs ANY residential house, other than the new asset, within a period of 3 years from the date of transfer, the exemption shall be taxable as LTCG.
This is irrespective of the fact that the house which the assessee already owned was demolished and new house constructed in place of the same.
So the earlier exemption shall be taxable.
2. However, the amount invested in construction on new house will be allowed as exemption u/s 54F from sale proceeds of land B since you satisfy the other conditions.
Kindly take the following to your consideration and give opinion:
1. The original asset (land)-A on which I claimed exemption 54F transfer date is 30th May 2009.
2.Bought a house-B with the entire sale proceeds on 08th October 2009. (Had ONLY one more House-A then)
3. Claimed exemption for AY 2010-11, i.e FY 2009-10.
4. Sold land -B on 17th May 2012.
5. Want to claim exemption on an apartment unit that is going to get constructed fully in July 2013. (By demolishing and constructing an apartment in HOUSE - A)
I infer from the above that the original asset was sold on 30th May 2009, and I am completing the new apartment unit construction in August 2013, which is more than 3 years and hence I can claim exemption.
Kindly interprete based on my correct dates as above and give your opinion.
Why i am asking you this question is 54F also says that I should not construct a new house within 3 years from the sale of the original asset after claiming exemption.
I don't know what is original asset, is it the land - a which I sold or the house -B which I bought. Very confusing for a lay man.
22 November 2012
1. The original asset means the asset which was sold - land.
2. Since you DID not construct any residential house during the period of 3 years from the date of transfer of original asset (land) the provisions of Section 54F have NOT been violated and the exemption allowed earlier shall NOT be taxable.
3. Lastly, as I have already said the sale proceeds from land B invested in construction of new house is eligible for exemption u/s 54F since you do NOT own more than one house at present.
I think one more clarification of a meaning is required which is very IMPORTANT.
" The assessee should not own on the date of transfer of the original asset more than one residential house (other than the new house). HE SHOULD ALSO NOT PURCHASE WITHIN A PERIOD OF 2 YEARS AFTER SUCH DATE OR CONSTRUCT WITHIN A PERIOD OF 3 YEARS AFTER SUCH DATE ANY RESIDENTIAL HOUSE (OTHER THAN THE NEW HOUSE).
Kindly clarify 1. construct within a period of 3 years - I have started construction of the apartment unit in november 2011, and is due to be completed in August 2013. What does "CONSTRUCTION" mean. Starting or ending and finishing.
2. What is the date of sale of ORIGINAL ASSET. Is it the land - A or the HOUSE-B.
22 November 2012
1. An under construction house is NOT a residential house. Unless and until the construction is complete, the under construction house CANNOT be called a residential house.
So, construction means COMPLETION of construction and NOT commencement of construction.
2. Date of transfer is the date of sale of LAND A. (Land A was SOLD, House B was BOUGHT)
you concluded that there will be no tax implication if i retain one apartment unit in the residential complex being constructed by me for the exemption against LAND-B solid on 17th may 2012.
Now i have more queries on the same.
1. I have diluted my 8100 sft plot with a house (Fixed asset - demolishing it) for stock in trade in november 2011 (at the time of start of excavation work of the residential complex)and hence the capital gain arising out of the dilution can it be converted as investment in the apartment unit which i propose to retain? 2. Is there any document that I have to generate to prove my retaining of one apartment unit in the residential complex. 3. If I have only made agreement to sell for only 2 /12 apartment units in the residential complex, will the remaining be considered as my own assets? 4. If I sell the remaing 10/12 apartment units after completion how will the capital gains work? 5. Should I take the construction cost involved in the residential complex proportionately for the super built up area of each apartment unit, and show my investment for the apartment unit retained by me as a proportionate cost.
I was just going through section 45, and it reads as below:
Capital gains. 4045. 41[(1)] Any profits or gains arising from the transfer of a capital asset 42 effected 42 in the previous year shall, save as otherwise provided in sections 43[***] 44[54, 54B, 45[***] 46[ 47[54D, 48[54E, 49[54EA, 54EB,] 54F 50[, 54G and 54H]]]]], be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.
Here I see apart from section 54, Section 54F also included. In which case gift is relevant to exemption against 54F too.
23 November 2012
Yes gift is relevant for Section 54 and Section 54F both. Gift is treated as transfer and accordingly exemption allowed u/s 54F shall be taxable if the asset is transferred by way of gift within 3 years.
Nothing contained in section 45 shall apply to the following transfers :— (i) any distribution of capital assets 3 on the total or partial partition of a Hindu undivided family; (ii) 4 [***] (iii) any transfer of a capital asset under a gift or will or an irrevocable trust :
Now as per section 2(42a) as indicated by you does not pertain to gift.
Just think this way.
Touch wood. If suppose my wife leaves behind this asset and passes away, and she leaves WILL in my favour, then all the exemptions are carry forwarded to the beneficiary of the WILL.
If WILL can transfer or carries forward the exemptions she enjoyed, why can't her GIFT.
thanks meharnath.
for your reference I have pasted the section 2(42a)
SECTION 2(42A) l SHORT-TERM CAPITAL ASSET
22. Whether gains arising on exchange of gold bonds at the time of their redemption is short-term capital gain - Whether answer to this query would depend upon the time that has passed between their date of redemption and subsequent sale 1. The Government of India had issued in the year 1965, National Defence Gold Bonds, 1980. These Bonds were redeemable after 15 years, i.e., on or after 2-10-1980. It was clarified in the Press Communique bearing No. MMS/MMM/ANT/361/3, dated 22-9-1980 issued by the Department of Economic Affairs, Ministry of Finance, that : “No capital gains will arise when the Bonds are exchanged for gold on redemption. However, any subsequent sale, exchange or transfer of such gold within the meaning of section 2(47) would attract capital gains tax in respect of capital gains arising from such sale, exchange or transfer. For the purpose of computation of capital gains, the cost of acquisition of gold would be the market value of the bonds on the date of redemption.” 2. A question has arisen as to whether such capital gains should be treated as long-term or short-term capital gains. The question has been examined by the Board. The exchange of gold bonds at the time of redemption is an altogether fresh transaction when an assessee acquires a different asset. It has also been decided above that for the purposes of the computation of capital gains, cost of acquisition of gold would be the market value of the bonds on the date of redemption. The material date in this case would, therefore, be the date of redemption of gold bonds which would be treated as the date of acquisition of the gold. As per section 2(42A) ‘short-term capital asset’ means a capital asset held by an assessee for not more than 36 months immediately preceding the date of transfer. The question as to whether the gains arising in such cases would be short or long-term would, therefore, depend upon the time that has passed between the date of redemption of gold bonds and the subsequent sale of gold. Circular : No. 415 [F. No. 207/7/85-IT(A-II)], dated 14-3-1985. JUDICIAL ANALYSIS
EXPLAINED IN - In CIT v. Oriental Containers Ltd. [1993] 70 Taxman 374 (Bom.), it was observed that this circular merely states that no capital gain will arise when the Bonds are exchanged for gold on redemption. However, any subsequent sale, exchange or transfer of such gold would attract capital gains tax in respect of capital gains arising from such sale, exchange or transfer. This Circular has no application at all to the facts of the present case, namely, where assessee sold National Defence Gold Bonds, 1980 and claimed that excess realisation on such sale was neither taxable as income nor as capital gains. EXPLAINED IN - In CIT v. Debmalya Sur [1994] 207 ITR 996 (Cal.), the above circular was explained with the following observations : “In this connection, our attention has been drawn to a Circular No. 415, dated March 14, 1985, which, in fact, takes the same view as has been canvassed by the Revenue. In the said circular, the Central Board of Direct Taxes has made it clear that no capital gains will arise when the bonds are exchanged for gold on redemption. However, subsequent sale, exchange or transfer of such gold would attract capital gains tax and the question as to whether the gains arising in such cases would be short or long-term would depend upon the passage of time between the date of redemption of the bonds and the subsequent sale of gold received on redemption....” (p. 1002) REFERRED TO IN - In Smt. L.M. Parikh v. Sixth ITO [1990] 81 CTR (Bom. - Trib.) 97, this circular was referred to, with the following observations: “. . . . We are of the opinion that the Circular No. 415, dated 14th March, 1985, is very clear on the point that the date of redemption of the gold bonds would be treated as the date of acquisition of the gold and while computing the capital gains, the cost of acquisition of gold would be the market value of the bonds on the date of redemption. The circular lays down that capital gains will not arise when the bonds are exchanged for gold on redemption but would arise on subsequent sale of the gold and for this purpose the computation shall be on the premise that the cost of acquisition of gold is the market value of the bonds on the date of redemption. The plea of the assessee that the date of redemption means the actual date of redemption is misplaced. The press communique issued by the Finance Ministry on 22nd Sept., 1980, incorporating the guidelines states that for the purposes of computation of capital gains, the cost of acquisition of gold is the market value of the bonds on the date of redemption. On the date when the press communique was issued, only one date of redemption was conceivable and that was the date when the bonds were going to mature. Obviously, therefore, what is implied in the press communique is the date of maturity of the bonds, and could not be the actual date of redemption. It may also be stated that the bonds were also in the nature of debt or liability and their date of discharge would be the date when the same were due to be discharged which, in this case, was 27th Oct., 1980. When the gold bond is issued to a person, there is an agreement between him and the Government that the bond will be returned on a certain future date, called the maturity date, and during that time, he has the right to interest and he can also assign the bond. Under the terms of agreement, the holder has a right to get back the gold on the maturity date whereupon the interest would cease and it would not longer be assigned. Therefore, on the maturity date, the character of this document which was the bond, would change. It would not bear interest and it would lose assignability. On the maturity date, it is merely a document of title to the gold and its presentation to the Reserve Bank would entitle the holder of that document to the delivery of the gold. . . . .” (p. 100) 23. Instructions regarding determination of the ‘date of transfer’ and holding period for purposes of capital gains qua transactions in securities 1. Under the provisions of clause (42A) of section 2 of the Income-tax Act, 1961, the shares held in a company or any other security listed in a recognised stock exchange in India or units of the Unit Trust of India or units of a mutual fund specified under section 10(23D) shall be regarded as short-term capital assets if they are held by an assessee for not more than 12 months immediately preceding the date of its transfer. Clarifications have been sought as to which date should be regarded as the date of transfer and also about the date from which the holding period of the securities should be reckoned. Clarifications have also been sought as to how the holding periods will be computed for the purposes of capital gains when the securities, purchased in several lots at different points of time and which are taken delivery of in one lot, are subsequently sold in parts and no correlation of the dates of purchase and sale is available. 2. When the securities are transacted through stock exchanges, it is the established procedure that the brokers first enter into contracts for purchase/sale of securities and thereafter, follow it up with delivery of shares, accompanied by transfer deeds duly signed by the registered holders. The seller is entitled to receive the consideration agreed to as on the date of contract. The Board are of the opinion that it is the date of broker’s note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker’s note for purchase on behalf of the investors. In case the transactions take place directly between the parties and not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds. 3. As regards the second issue, where securities are acquired in several lots at different points of time, the First-in-first-out (FIFO) method shall be adopted to reckon the period of the holding of the security, in cases where the dates of purchase and sale could not be correlated through specific numbers of the scrips. In other words, the assets acquired last will be taken to be remaining with the assessee while assets acquired first will be treated as sold. Indexation, wherever applicable, for long-term assets will be regulated on the basis of the holding period determined in this manner. Circular: No. 704, dated 28-4-1995.
Section 47 clearly states as below: Nothing contained in section 45 shall apply to the following transfers :— (i) any distribution of capital assets 3 on the total or partial partition of a Hindu undivided family; (ii) 4 [***] (iii) any transfer of a capital asset under a gift or will or an irrevocable trust : Now as per section 2(42a) as indicated by you does not pertain to gift. Just think this way. Touch wood. If suppose my wife leaves behind this asset and passes away, and she leaves WILL in my favour, then all the exemptions are carry forwarded to the beneficiary of the WILL. If WILL can transfer or carries forward the exemptions she enjoyed, why can't her GIFT. thanks meharnath.
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