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Capital gain query

Mihir (Wealth Manager) (5293 Points)

01 March 2015

An individual sold a property incurring a LTCG of 45 lacs/- in the July FY 2014-15

He re-invested the LTCG in September months in FY 2014-15 in a property having value Rs. 36 lacs

He will claim exemption u/s 54 of Rs. 36 lacs in his return for FY 2014-15 and pay some tax is required.

Now, he wants to sell this same property in April FY 2015-16 for Rs. 36 lacs. This will cause nil STCG / LTCG even if sold within 3 years. Out of this Rs. 36 lacs, he wants to buy another property of 22 lacs.

What does he have to show in his return for the FY 2015-16. Since there is no capital gain, and he is investing only 22 lacs from 36 lacs, any idea how the IT dept might view such transactions?

Thanks

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4 Replies

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 01 March 2015

Sir, My explaination is in the attached excel sheet

Attached File : 852544 1409632 54.xlsx downloaded: 172 times

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Mihir (Wealth Manager) (5293 Points)
Replied 01 March 2015

Thanks for your details answer.

But if he sells the property worth 36 lacs within 3 years for 36 lacs, there should not be any STCG because there is no gain here. Sale consideration is 36 lacs and cost of acquisition also 36 lacs.

He cannot claim exemption u/s 54 for STCG but there should be some gain, but here the property is sold for the same price as the purchase price. No gain.

Please let me know your opinion.

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 01 March 2015

Sir, earlier he claimed 36Lakhs deduction and pay Long term capital gain tax on only 9L just by the virtue of section 54. He violated section 54 by transferring the property with in 3years. so what ever benifit given to him earlier under section 54, we are taxing him under the head Short term capital gain. Earlier exemption claimed was 36lakhs and now Department make him subject to tax of STCG on 36Lakhs. Like a penalty instead of original nature of LTCG, we are taxing such income as STCG, Thank you!

Mihir (Wealth Manager) (5293 Points)
Replied 02 March 2015

I think I need to clarify further.

He sold a property and incurred LTCG of 45 lacs. Against that, he purchased a property worth 36 lacs in the same FY 2014-15. He files IT return and claim exemption u/s 54 for 36 lacs and pays tax on the remaining 9 lacs LTCG. End of story.

In the next FY 2015-16, he sells the same property worth 36 lacs which he bought in FY 2014-15 for 36 lacs in 2015-16. There is no profit no loss.

In my opinion, he has purchased a property worth 36 lacs and availed exemption u/s 54 and also filed IT return. His file is closed. He is not required to keep the new property for 3 years in order to avail exemption u/s 54.

Please go through this carefully and let me know