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Long term Gain Reinvested in Installments...

Sunil (GM) (94 Points)

21 February 2011

I bought one Flat in 2002 say at X price & will be sold this year say at 5X . Now I invest this money in under construction Flat on Construction linked payment plan ( 3 to 4 Years ) . Will this income ( 5X - X ) be Taxable as I will not be investing full money at one go but in installments which will be paid over a period of 3 / 4 years ???

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vishnupriya (CA Final) (1418 Points)
Replied 21 February 2011

Dear friend!

The consideration received by you (5X) is taxable after deducting any expenses for transfer and indexed cost of acquistion and it is known as capital gains.

U/s 54 of IT Act, you can claim investment based exemption. But the only thing is you should purchase another residential house with in a period of

1. 1 year before transfer or

2. 2 yeras after the date of transfer

(or)

3. you can construct another residential house within a period of 3 years after the date of transfer.

Such house newly acquired should not be transfered for 3 years.

You can claim only upto investment made by you that too if it is within 2 years for purchase.

Installments or lumpsum payment is irrelavent

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Sunil (GM) (94 Points)
Replied 21 February 2011

Thanks Vishnu . What I understand is If I buy new flat on installments ( which will be completed in 3 to 4 years ) than I donot have to pay any Tax & This new property should not be sold for 3 years . Also this 3 year will be from date of buying of new property or from completion of last installment . Please confirm

Pradip (Partener) (27 Points)
Replied 21 February 2011

Hi Bhupinder

In my openion you have to invest all the gain earned on the earlier investment with in the due date of submission of return in capital gain deposit account.or you have to invet in purchase of new property. other wise all the gain would be chargeable to income tax.

so before due date of filling your income tax return you have to deposit all the gain in either of the option for saving tax.

correct me if I am wrong.

Sunil (GM) (94 Points)
Replied 21 February 2011

Dear Sir ,

I am confused & looking for specific answer to my question . I repeat , I will buy under construction flat within 6 months of Sale of old flat & payment for new flat will be paid in installments over a period of 3 to 4 years.

Please help me in getting correct answer .

Thanks

Bhupinder

Pradip (Partener) (27 Points)
Replied 22 February 2011

Dear Friend

You have to just invest capital gain befor the due date of filling the return in either purchase of new property or u have to credit gain you earned to capital gain deposit account. so no deduction will be allowed if you invest in the property even in the case of installement paid after the due date.all the payment made befor the due date will be consider for exemption.

so u have to invest the gain earned on the earlier property within the due date of filling of ur return.

otherwise long term capital gain is chargeable on your gain.

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vishnupriya (CA Final) (1418 Points)
Replied 22 February 2011

Agreed with pradip!

But such amount which is transferred into special account should be utilised for the purchase of new residential house within 2 years or else it will be treated as unutilised amount and the exemption provided earlier is reversed by recalculating the income tax.

Sunil (GM) (94 Points)
Replied 22 February 2011

As I will be buying under construction flat from Builder so time period for making payment ( construction linked plan ) for new flat is 3 years from date of sale of old flat . Please clarify ?

vishnupriya (CA Final) (1418 Points)
Replied 23 February 2011

You have to get possession of the property to claim exemption U/s 54. So you should acquire it within 2 years.

john (LEARNER) (549 Points)
Replied 23 February 2011

Experts plz correct if I AM WRONG.

eg. taking into consideration the above posts.

Mr.X purchase a house in 2002 for 5,00,000/-

Sold the same in 2010 for 10,00,000/-

Period of holding more than three year = long term capital gain.

Now Capital Gain = 5,00,000/- (10 lac -5 lac)

the assessee is required to use the Capital Gain amount towards purchase of another residential house with in a period of

1. 1 year before transfer or

2. 2 yeras after the date of transfer

(or)

3. you can construct another residential house within a period of 3 years after the date of transfer.

and if

the capital gain amount seems not to be utilized before the due date of filing the income tax return, than the assessee needs to invest the Capital Gain amount

in CAPITAL GAIN ACCOUNT SCHEME and the same should be utilised for purchase of new residential house.

2 yeras after the date of transfer

(or)

you can construct another residential house within a period of 3 years after the date of transfer.

and if

the amount so deposited is not utilised wholly or partly for the purchase or construction

of the new asset, the amount not so utilised shall be charged as capital gain under section

45 in the previous year in which the period of three years from the date of the transfer of

the original asset expires. The assessee shall be entitled to withdraw such amount in

accordance with the scheme.

vishnupriya (CA Final) (1418 Points)
Replied 25 February 2011

Hi John!

What you are thinking is right but if there is a failure on part of assessee in utilizing the amount deposited ... then the capital gain is taxable in the previous year in which transfer takes place.

In the example you have mentioned it will be in py 2010 not in 2013 etc..