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Capital gains tax

subra (share business) (67 Points)

19 November 2011

i sold my residential land on 22.01.2009 for 47.5 lakhs purchased for Rs 5 lakhs in 1995. I have put the whole amount in capital gains avoidance account in SBI . Kindly help me what i have to do now?

1. Purchasing a completed flat from a builder or a built up house from an owner before 21.01.2012 for 37.5 lakhs ( actual capital gains) or for 47.5 lakhs?

2. If I do not like the ready made house or flat , can i book an unfinished flat for 37.5 or 47.5 lakhs with a reputed builder before 21.01.2012 and still can avail capital gains exemption?

3. If i do not purchase a house or a flat before 21.01.2012 , how much tax i have to pay?

Please somebody help me.

Thank You in advance.

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11 Replies

Vikas (CA) (1135 Points)
Replied 20 November 2011

Sir.... first ...the capital gain exemption u/s.54, that u r availing, is in relation to the investment to b made within a year of purchase or 2 yrs of sale for builtup house or else within 3 years from the date of sale for construction of a house... now.. 1) the last date for a built up house will b 2 yrs from the date of trsfr. i.e. 20-01-11, n the amt to b invested would b the capital gain exemption claimed amt...(sale - indexed cost)...refer computation of income... 2) u can invest in an unconstructed house upto 20-01-12 i.e. within 3 yrs from the date of transfer...amt for investment would b same as mentioned in (1) 3) amount already explained in 1)...

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Vikas (CA) (1135 Points)
Replied 20 November 2011

u will have to reverse the exemption claimed and pay tax on the same...if investment is not made....

subra (share business) (67 Points)
Replied 20 November 2011

Dear mr.vikash Thanks a lot.Even my popular auditor at my home town was not able to clear my doubt. Can i purchase a plot now at my home town and give the entire amount Rs 3750000 minus land value minus the possible registration value to a reputed builder before 20.1.2012? He may take 6-10 months to complete the project,but it will exceed three year period from the date of sale by 6-10 months. In this scenario, can i escape from paying capital gains tax of 20% of Rs 3750000,i.e. Rs 750000. I would highly appreciate your valuable opinion sir. Thank you sir in advance.

Vikas (CA) (1135 Points)
Replied 20 November 2011

thanks for appreciating the effort but ... i m afraid no such escape in law is possible...u will have to invest in unconstruction house within 3 yrs of trsfr else pay capital gain tax...

subra (share business) (67 Points)
Replied 20 November 2011

Dear Mr.Vikas,

Buying a plot immediately and start constructing a house within 2 months and showing it as an unconstructed house is not possible , sir?

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subra (share business) (67 Points)
Replied 20 November 2011

Dear Mr.Vikas,

one of a reputed builder is building 32 flats at my home town and few flats are available for sale and the construction is halfway through and the flat may be handed over to the customers in another 8 months, whether this investment can help me to avoid paying capital gains tax, sir.

Thank you in advance.

Z ( ) (2965 Points)
Replied 20 November 2011

I agree with Mr. Vikas Vishwakarma

First your capital gain is (rectify me if wrong)

If Purchased during (1-04-94 - 31-03-95)

Sale consideration = 47,50,000

Less INDEXED Cost of purchase (assumed included any taxes paid ) = (5,00,000) X 632 / 259

Less indexed cost of improvement = Not mentioned (assuming nil)

35,29,922 =a

If Purchased during (1-04-95- 31-03-96)

Sales consideration = 47,50,000

Less (same as above) = (5,00,000 X 632 / 281)

36,25,444 =b

You need to invest amount of cap gain, not the sales consideration

If you do not make investment or withdraw the amouint then taxable amount is 20% of the capital gain

As mentioned by Mr. Vikas

If the construction completes within the said period of 3 years after the transfer

or if you purchase within 2 years after transfer or 1 year before transfer

The property should be CONSTRUCTED within the prescribed time , you can later IMPROVE IT

Suppose you build 2 floors (in my opinion construction is completed) lateron you can construct another floor and its cost will be allowed as Cost/ Indexed cost of acqusistion will calculating Capital gain for sale of That or Part of that property

Allocate your expenses . If its not possible to complete the construction within desired time and such a hypothesis (which I mentioned) is possible then ask the contractor to adjust the bill . Like take more money now (to the extent of cap gain) and charge less on the IMPROVEMENT/REMAINING PART

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subra (share business) (67 Points)
Replied 20 November 2011

Sir,

If i purchase a land immediately and pay the full amount immediately to construct a house to a builder, can i show it to IT as a house under construction to avoid Capital gains as three years will be over only on 20.01.2012.

Thank you in advance

Z ( ) (2965 Points)
Replied 20 November 2011

In the Act its written constructed , not under construction so sorry can't do.

If you can DECLARE the house as CONSTRUCTED or in case of dispute PROVE to AO that house is constructed then you can claim full exemption.

Vikas (CA) (1135 Points)
Replied 20 November 2011

Mr. Subramanian... Mr. Z has explained it well n is right above... it is advisable that u now invest n let the IT Dept find out whether the house is constructed or not... ..... all the Mr. Subramanian... have a healthy life....

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Z ( ) (2965 Points)
Replied 24 November 2011

THERE WAS MIS INTERPRITATION OF PROVISION ON MY PART

I HAVE ALSO GIVEN INTIMATION TO Mr. Meyyappan Subramanian VIA MAIL

Mail includes the following Extracts of the cases from various sources

In the case of Satish Chandra Gupta v. Assessing Officer [1995] 54 ITD 508 and Tribunal after considering the provisions of section 54 as well as section 55 held that the claim cannot be denied on the ground that the construction the house started by the assessee was not completed within the stipulated period of three years and some work was carried out thereafter.

In CASE B.B. Sarkar v. CIT [1981] 132 ITR 150 (Cal.). "The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is PARTLY constructed or partly purchased." Case Commissioner of Income-tax v. Chandanben Maganlal R. BALIA AND A.R. DAVE, JJ.;an assessee to get exemption from payment of tax in respect of purchase or construction of a residential house, purchase or construction of a PORTIONS of the house, should also enable the assessee to claim the exemption

SOuRCE : https://law.incometaxindia.gov.in/dittaxmann/incometaxacts/2008itact/%5B2000%5D245ITR0182%28Guj%29.htm