Treatment of capital gain

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Rajesh ranka (Querist)
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04 March 2016 Hello please consider the following Case.
Mrs. B have a Flat at Uran & want to sale it.The Flat was purchased in August 2006 the Current Market Rate is Rs. 20 Lakhs now she want to construct a building from the sale of this flat on the land situated at roha in the name of her husband Mr.A. Mr.A is a NRI person.Now want to know that what will be the Tax Liability on sale of this flat and What will be the Exemption from this Capital Gain Transaction?
It is possible to construct the House on the Land of her husband?
can she claimed capital gain exemption?

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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04 March 2016 Following conditions should be satisfied to claim the benefit of section 54.
• The benefit of section 54 is available only to an individual or HUF.
• The asset transferred should be a long-term capital asset, being a residential house
property.
• Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house. In case of compulsory acquisition the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).

With effect from assessment year 2015-16 exemption can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only. No exemption can be claimed in respect of house purchased outside India.

The ITA grants exemption of capital gains arising from the transfer of a long-term capital asset other than a house property under section 54F. The conditions to be fulfilled are as follows:-
(i) The assessee should be an individual or a Hindu Undivided Family (HUF).
(ii) The asset transferred should be any long-term capital asset but other than a residential house.
(iii) The assessee should have purchased, within one year before the date of transfer or two years after the date of transfer or constructed within three years after the date of transfer (or from the date of receipt of compensation in the case of compulsory acquisition), a residential house (hereinafter referred to as "new house").
(iv) The assessee should not have sold or transferred the new house within three years of its purchase or construction.
(v) 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 one year after such date or construct within a period of three years after such date any residential house whose income is taxable under the head "Income from House property"(other than the new house).
(vi) The assessee also has the option of depositing this amount in Capital Gains Account Scheme as explained in section 54 above, before the due date of furnishing the Income-tax return.

A plain reading of the sections and applying the rules of interpretation the conclusion arrived as is the new property - flat or house should be in the name of the assessee. There is no mention of the land, in so far as it is not said that the land on which the house is constructed should be owned by the assessee.

Legally, a lessee can construct buildings on leased land. Therefore there is no bar on the assessee building the house on the land owned by her husband - but at the time of resale of the new property, there would be two separate transactions, one with the husband for transfer of land and one with the wife for transfer of building.

Therefore, if other conditions are fulfilled Mrs.B is not liable for capital gains tax subject to the other conditions on constructing a house IN HER OWN NAME.