Long term capital gain

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 12 November 2011

Originally posted by : pisuapti jagannath
	sir, am an engineer. need some clarifications on following matter. a. purchased a house in aug 2003 for 22lakhs b. sold the same in apr 2008 for 43lakhs. c. bought a new flat for a total cost of 38 lakhs in a newly constructed building by a reputed corporate builder with date of allotment sept.2008. date of scheduled possession jun 2011. d.mistakenly kept in FD sale amount in scheduled bank like HDFC. e. been paying the instalments from this account. flat registered & stamp duty paid. f. possession is delayed due to NOC and will be ready by dec2011. residual amount to be paid is Rs.4lakhs on final possession. want to know the following a. will i be allowed under long term capital gains. b. will it be on the residual amount c. what will be the tax liability. d. will the entire sale amount will be added to my income for FY 2009-09. e. how does IT officer will assess the whole case. f. what will be the interest & penalty to be paid. regards pj

its pure LTCG

if you have paid gross LTCG within 2 years , i.e within march 2010 to the builder than no tax implication.

calculation for LTCG

23L*582/463 = 28.91 Lac indexed value

43- 28.91 = 14.09 long term capital gain.( taxable or to be invested/ paid within 2 years of sales for purchase of sales)

pisuapti jagannath (ceo) (33 Points)
Replied 12 November 2011

sir,

thanks for your kind reply. however my payment is not complete by 2yrs. as on now there is still balance of Rs.4lakhs for possession.

clarify

a. sec 54 allows 3yrs from the date of sale / transfer for a newly constructed house. as i have booked a apartment in a newly constructed multi storied building, do i qualify for this.

b. since it has crossed 3 yrs, what will be tax implications. will the capital gains tax will be on residual amont to be paid which Rs.4lakhs. or as per you the amount pending beyond march 2010.

c. how it done. what amount will they add to my income for FY 2008-09.

d. if so , what will be the penalty & interest.

e. implications of my keeping in FD in HDFC .

regards

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 12 November 2011

i assume that you have paid more than 15 lacs within 1st year itself, , investment of capital gain is needed, principal indexed cost may not be essensial to invest.

CA.SKR (CA; CS-Final (One Group); DISA (ICAI); Insolvency Professional) (442 Points)
Replied 12 November 2011

As per Sec-54 (2) of Income Tax Act, the amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under Sec-139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under section-139 (1)] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset.

You sold the house in April 2008 (FY: 2008-09) and earned LTCG. Whatever you paid to the builder for booking the flat till the date of filing your ITR for the Ass. Year 2009-10 (Fin. Year 2008-09) but before due date of ITR, only that amount will be considered as your appropriation for purchase of new asset. Rest of the LTCG was taxable during AY:2009-10.

I do not agree with the answer of Mr. U S Sharma regarding "No tax Implication if paid to the builder before March 2010.

pisuapti jagannath (ceo) (33 Points)
Replied 12 November 2011

Sir, Thanks for your kind reply. Am bit confused . Kindly note the following a. I paid Rs. 12lacs in 1st yr, Rs. 15lacs in 2nd yr, Rs. 7 lacs in 3rd yr. b. Have FD deposit in HDFC c. Will the tax on balance LTCG will at 20% or will it be added to income of the year AY 2009-10 and taxed in normal manner as per IT laws d. Can you quantify interms of tax, interest , penakty etc. e. What should be my course of action Kindly advise Regards pj

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 13 November 2011

@ CA Satender Kumar

capital gain account scheme is a formal mode of deposit for delaying the investment from capital gains, over two years. if the assesee pays the "capital gain amount" to the builder under the agreement of booking the possession, then its allowed under 54F,

time limit is 2 years from the date of such sale for making payment of capital gains, however if he is not in position to use the funds within two years, then he has to open capital gain account and deposit the same for use in future.

@ Jagannath

as you have used 12 Lacs of capital gain out of 14.09 lacs, in very 1st year, ( that is well before the filing of return of the year in which capital gain taken place)

if balance of 2.09 lacs or more get paid within the due date of return due for that year . i.e 31-07-2009, then the question of capital gain account does not comes in picture.

however 12+15 paid within 2 years, so the entire capital gain is invested within 2 years, only a minor fault that 2nd year payment was not made through capital gain account, so check the payments made within the period 01-04-2009 to 31-07-2009, and if it exceeds the amount then get relaxed.

possession of flat is determined on booking and agreement of sale, final completion and registration are not mandatory bindings for sec 54F

deposit in HDFC or any other bank is your personal matter, and incometax department is entitled to get tax on the interest earned.

pisuapti jagannath (ceo) (33 Points)
Replied 14 November 2011

sir,

thanks for your valuable inputs. however note the following

a. do we have to compute capital gains in AY 2010-11 or AY 2009-10, as legal registration done in may 09. allotment letter is in sept 08.

b. return filed for FY 2008-09 in july09.

c. payment of Rs.2Lacs done after jul 09.

d. will the balance capital gain amount after jul 09, will be added to income and taxed as per income tax rates, as i am in high bracket or capital gain tax of 20%.

e. is it a fit case for penalty, if so, what will be the amount.

f. implications of possession going beyond 3yrs.

regards

pj

CA.SKR (CA; CS-Final (One Group); DISA (ICAI); Insolvency Professional) (442 Points)
Replied 14 November 2011

Dear Mr. U S Sharma,

Sec-54F is not applicable in the querry raised by Mr. Jagannath. Sec-54F is applicable only in case the capital gain arises from the transfer of any long-term capital asset, not being a residential house.

Further as per Sec-54F(4), the amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset.

Please go thru. the provisions of Sec-54F carefully once again.

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 14 November 2011

Originally posted by : pisuapti jagannath

sir,

thanks for your valuable inputs. however note the following

a. do we have to compute capital gains in AY 2010-11 or AY 2009-10, as legal registration done in may 09. allotment letter is in sept 08.

- did we discussed about the legal registration? but without agreement you can not book a flat, agreement date with an initial payment is valid proof.

b. return filed for FY 2008-09 in july09.

c. payment of Rs.2Lacs done after jul 09.

- get the receipt back dated by the builder prior to your return filing date ( it may get encashed few weeks later)

d. will the balance capital gain amount after jul 09, will be added to income and taxed as per income tax rates, as i am in high bracket or capital gain tax of 20%.

- if the capital gain is not appropriated towards new house purchase, or deposited to capital gain account, it is taxable.

e. is it a fit case for penalty, if so, what will be the amount.

as per your calculation 20% of 2.09 lacs is tax , interest thereon and penalty if any.

f. implications of possession going beyond 3yrs.

- no change if agreement is within time.

regards

pj

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 14 November 2011

@ CA satender kumar

I have updated the info, in my next reply

however in absence of complete details from the query holder, it get tough to update the replies, as they deliver the data in piecemeal form, and while making reply every piecemeal next supplement turn the reply a new shape as per rules,

thanks for rectififying me for the sec 54 in this regard.