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Capital gains

prathyusha (articles student) (57 Points)

19 August 2015

Dear Sir, Ma'm,

I have small issue regarding the capital gain excemption U/S 54

I have a client who is having property which is purchased in the year 2009 and he sold it on 11/02/2015 and later on he invested such amount in further construction of a resedential dwelling ,which was already in the process of construction from the year 2013 itself but the entire process of construction will get over by 2016. whether we can claim excemption under section 54 for this house which is being constructed yet

can we claim the entire cost of construction under Sec 54

Thanks in advance

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11 Replies

Shishir Nayak ((Expert)) (369 Points)
Replied 19 August 2015

To claim the exemption the taxpayer will have to invest the capital gains either for the purchase of another residential house property (old or new) within a period of one year before or two years after the date of transfer or in the construction of another residential house property within a period of three years after the date of transfer.

Above statement indicates contruction cannot precede sale of Old house.

But as per CIT vs H.K Kapoor case law exemption cannot be refused on ground that construction begun before sale of old house. To get benifit under Sec 54 assesse has to complete construction within prescribed time that is 3 years from transfer of old house.

In your case counstruction will be completed within 3 years.

If the whole of capital gains are invested in the cost of the house so purchased or constructed, the entire capital gains will be exempt from tax. If, however, the amount of capital gains is greater than the cost of the house so purchased or constructed, the difference between the two will be chargeable to tax

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prathyusha (articles student) (57 Points)
Replied 20 August 2015

In case the date of transfer is 11/02/2015 and invested in the construction of residential dwelling whose construction is started in the year 2004 and still the process of construction is going on and will be completed by 2016.As per the provision of section 54 the construction is to be completed within 3 years from the date of transfer.

can we get exemption even though the construction is started in the year 2004?

CA Sukriti Jain (Senior, EY) (1184 Points)
Replied 20 August 2015

yes you can get exemption @ pratyusha, as also explained well by shishir abov.

prathyusha (articles student) (57 Points)
Replied 20 August 2015

Thanks Sukriti,

What about in the following case?

CA Sukriti Jain (Senior, EY) (1184 Points)
Replied 20 August 2015

as per CIT vs H.K Kapoor case law exemption cannot be refused on ground that construction begun before sale of old house. To get benifit under Sec 54 assesse has to complete construction within prescribed time that is 3 years from transfer of old house. In your case counstruction will be completed within 3 years ie 2016.

Law talks about the investment in contruction. & gives a time limit to complete the construction. its not relevant, when the construction started.

Hence, you will get exemption u/s 54 even if costruction was started in 2004.

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Rahul Verma (CA-Final) (484 Points)
Replied 20 August 2015

I read over case of CIT vs H.K Kapoor, under which i found that exemption can't be deny on the grround that assessee has started construction of house on before date of trasfer and i am totally agree with that. An assessee who sold house can started to construct house before the date of transfer but construction should be completed within a period of 3 years from the date of transfer.

In the question given above construction is started in 2004 before the date of transfer i.e. 11.02.2015 and completed within a period of 3 years from transfer date i.e. in 2016, so assessee will be allowed to take exemption under section 54.

Rahul

+91-9555361300

prathyusha (articles student) (57 Points)
Replied 20 August 2015

Thank you Shishir Sukriti and rahul :D

SANDIP NONDAL (Student CA Final ) (22 Points)
Replied 20 August 2015

Dear Sir/Madam,

I would like to know the the tax treatment on intraday profit sale of shares through NSE/BSE. I have earned Rupees 55K intraday profit in the FY 2014-15. I want to know the tax treatment on this because it is a speculative business income u/s 43(5). Please suggest me as soon as possible.

Thanking You.

Yours faithfully,

Sandip Mondal.

CA Final Student.

Shishir Nayak ((Expert)) (369 Points)
Replied 20 August 2015

Hi @ Sandip, You have the answer in your question itself. Some more information you can refer below:-

Income from intra-day trading in shares is treated as speculative business income as the transaction is settled without delivery. Accordingly, it is charged under the head, ‘Profit and gain of business or profession'. As per Section 43(5) of the Income Tax Act, 1961 speculative transaction means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares is settled otherwise than by the actual delivery or transfer of the commodity or scrips

In intra-day trading, there is no actual delivery as the shares enter and exit from the trading account on the same date and do not enter the demat account at all. However, if shares are purchased on a particular day and sold next day, it is not treated as ‘Speculative business'. The profit or loss on sale of such shares is taxable as short-term capital gain or business income, as the case may be.

Profit from intra-day trading is to be computed as per the normal slab rate applicable. Your tax liability would, thus, depend on your net taxable income.

SANDIP NONDAL (Student CA Final ) (22 Points)
Replied 21 August 2015

My Total Income details Before Speculative Business Income are as follows:-

Income from non-speculative business - Rs 2,13,115/-

LTCG from sale of UTI MF (100% Equity) - Rs 8,063/- [Exempt u/s 10(38)]

STCG (Delivery Based on shares) (Net off of STCL) - Rs 12,711/-

Stipend - Rs 25,000/- [Exempt u/s 10(16)]

Dividend - Rs 994/- [Exempt u/s 10(34)]

Savings Bank Interest - Rs 354/- [Deduction u/s 80TTA]

Interest on income-tax refund - Rs 800/-

Gift from others - Rs 2,500/-

Scholarship from tution centre for getting good marks in advanced accounting in IPCC - Rs 11,000/-

LIC Premium u/s 80C - Rs 3,804/-

At the same time I had Rs 55,000/- speculative business income Rs 55,751/- (Approx) from intra-day profit on share trading (does not include any f&o profit).

TDS - NIL

Advance Tax - NIL

Please suggest me for computing my Income-tax Return for the FY 2014-15, AY 2015-16.

Thanking You.

Yours sincerely,

Sandip Mondal.