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Exemption u/s 54f - construct house

Rajani (Software Engineer) (25 Points)

15 May 2012

I am planning to sell a residential plot (empty) and use the proceeds to construct a house (I currently own a flat). I understand I have 3 years time from the sale date, to complete construction of the new house.

My questions are:

1. Can I first use a part of the amount to buy another plot and then start construction of the house on it, after a year.

2. I am planning to deposit the entire sale consideration in a capital gains savings account and withdraw amounts as needed. is this the correct approach? or should I calculate the LTCG and deposit only that portion into the capital gains account?

Thanks, and I apologise if this was already answered elsewhere.

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5 Replies

Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 15 May 2012

Regards your Q1 you can definitely do that, as cost of land for the purpose of section 54F is an eligible investment provided the building is constructed on the land.

Regards your Q2, in case of section 54F, if the net consideration is not invested in the new asset before the due date of filing the I-T return the balanceshall be deposited in the CAGS scheme whihc should be withdrawn from the account as & when requried. After the construction is complete you can compute your .Capital Gains and offer for taxation the unutilised net consideration after 3 eyars.

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Nishtha Narielwala (Tax Consultant) (131 Points)
Replied 15 May 2012

For Q1 your approach is correct.

For Q2, in case you dont utilise the net consideration for investing it in a new residential house, then before the due date of filing the ITR, you have to invest the entire sum in a CGSA, and you can withdraw the sum as & when required. Aftr the expiry of the period of 3 years you can offer the balance amt in the CGSA for taxability.