Dear CA Dhirajlal,

Great insights in the section 54 matters.

Please advise your understanding on below example:

I have 2 properties under my name:

1. Property in Ahmedabad (100% my name) - more than 5 years old purchase.

2. Another property in Mumbai (under construction) - Flat bought under 80-20 subvention scheme i.e. I paid 20% upfront to the builder and bank paid 75% to the builder via a tri-party agreement, between bank/builder/me, with me being the taker of loan (balance 5% bank will pay to builder on possession). Registration of the flat was done in 2013 and allotment letter was provided then. Builder pays the Pre-EMIs till possession (although my responsibility to the bank is mine if the builder defaults on payments). Probably restriction on selling before possession. Possession probably by December 2019.

My father has one property in Mumbai. more than 5 years old purchase.

I am interested in buying another property in Mumbai which is under construction with possession in December 2019.

If my father & I sell all the current properties (2 mine & 1 his) and invest the money in this new flat (new flat value is higher than the total capital gains from sale of all 3 flats), can we both claim Section 54 benefit in below scenarios:

1. Sell all current flats, including the one under construction and buy the new underconstruction flat before March 2019 but possession of the new flat will be in December 2019.

Will I need to pay capital gains tax in AY 2019-20 and claim back the same (via Section 54) in AY 2020-21 since the possession of new flat is in December 2019 or the exemption u/s 54 can be claimed in AY 2019-20 since the registration of the flat will happen before March 2019 in spite of possession being in December 2019? Can we both get full exemption u/s 54?

2. Sell the current 1 flat each of my dad & mine and buy the new underconstruction flat before March 2019. Sell the underconstruction property in December 2019 after possession due to selling restrictions. The possession of new flat in December 2019.

In the above scenario, will my dad & I be able to claim  the exemption u/s 54 in AY 19-20 & also in AY 20-21 (when the present underconstruction property is sold after possession)?

Last question - I assume that the period of 2/3 years from purchase date will be counted, with regards to capital gains, from the registration/allotment of the flat in 2013 and thus the gain on sale of current under construction property would be considered long term capital gain and not short term capital gain (on the basis of possession in December 2019 and immediate sale).

 

Regards,

Pratik Doshi

@ Pratik,

Your father can sell his residential property as he gets opportunity, and invest his share in your joint property, as per conditions specified u/s. 54.

But there is catch in your case as one of the property is under construction, and possession not received. Would suggest to claim exemption u/s. 54F and sell before March 2019. The second property can be sold after April 2019.

Any unutilized gain/proceeds should be deposited in CGAS, 1988 acct, before filing return of PY.

Good Luck.

Dear CA Dhirajlal,

 

Thanks for the responses in the forum. Now the situation has changed slightly.

 

Facts:

I am a non-resident Indian. My parents are resident Indians.

 

We have finalized a ready possession flat (OC not yet received - will be received in 2 months) in Mumbai. We will register it in my parents and my name jointly (for section 54).

 

Presently, I own one flat in Ahmedabad (more than 5 years old) & my father-mother jointly owns one flat in Mumbai (more than 5 years old).

I also own another property in Mumbai (under construction) - Flat bought under 80-20 subvention scheme i.e. I paid 20% upfront to the builder and bank paid 75% to the builder via a tri-party agreement, between bank/builder/me, with me being the taker of loan (balance 5% bank will pay to builder on possession). Registration of the flat was done in 2013 and allotment letter was provided then. Builder pays the Pre-EMIs till possession (although responsibility to the bank is mine if the builder defaults on payments). Possession in December 2019 after which I will immediately sell the flat.

 

The value of new house is more than the total capital gains calculated after selling off the above three flats (2 Mumbai and 1 Ahmedabad flats).

 

Questions:

1. Will the subvention property be considered long term capital asset since the registration and allotment was done in 2013 OR a short-term capital asset since the possession was received in 2019?
2. If we sell the ready flats and register the new flat in March 2019 and the sale of under construction property happens in December 2019, can we claim section 54 on gains of all 3 properties (regarding the sale in December 2019, purchase of new flat is within one year before the sale) in the respective assessment years (ready flats capital gains in AY 2019-20 & subvention scheme flat in AY 2020-21), in spite of sale of one property being in next assessment year?
3. Will anything change if the ready flats are sold by March 2019 i.e. in AY 2019-20 and purchase registration happens in April 2019 i.e. AY 2020-21?
4. In case I can’t claim the section 54 benefit on the subvention flat which I will sell in December 2019, assuming it is considered a long-term capital asset, will I be able to claim any other exemption in AY 2020-21 (you had mentioned section 54F) considering that I will be owning 2 flats (including the subvention flat) at any point in time.
5. Presently, none of the flats are in my wife name (singly or jointly). If I wish to add her name as well, do we need to define % of ownership so that portion of purchase, that belong to each, will be considered as purchase value for section 54 exemption for my parents and me?
6. Worst case scenario. We do not manage to sell one or all the flats before the purchase deadline and I take a bank loan to pay to the seller. Then, I sell the flats. What happens to the exemption in that case?
7. What happens in above if the property purchase happens in AY 2019-20 & sale of flats happen in AY 2020-21?

Your inputs will be highly appreciated.

Regards,

Pratik Doshi

.1. Let me clarify that the flat under construction is not considered as 'house property' but an asset 'having right in property'. So, any long term capital gain over its transfer can be claimed u/s. 54F, wherein  sell consideration is to be calculated for exemption and not just gain.

2. Once you get possession of the flat, it will be treated as house property, and as such to get LTCG benefits you will be required to hold it for at least 2 years, and for any home-loan benefits at least five years; that is the reason I suggested to sell it as it is by March 2019.

3. Your wife can just be co-owner without any investment, while you & your father can claim exemption benefits as suggested earlier (only thing to verify is any share of your mother in  any of the properties).

4. Rest part can be adjusted to available circumstances based on the principle.

Dear CA Dhirajlal,

 

Many thanks for prompt response.

 

I will not be able to sell the underconstruction property as per the agreement. I will only be able to sell if post possession i.e. once it is ready. Shouldn't the 2 years for the calculation of LTCG be considered from the date of registration/allotment instead of possession?

If my parents, my wife & I become 25% partners each in the new flat agreement, will the 25% (my portion) of the flat value (incl stamp duty/registration) be considered for the exemption of section 54?

Please advise on below:

2.    If we sell the ready flats and register the new flat in March 2019 and the sale of under construction property happens in December 2019, can we claim section 54 on gains of all 3 properties (regarding the sale in December 2019, purchase of new flat is within one year before the sale) in the respective assessment years (ready flats capital gains in AY 2019-20 & subvention scheme flat in AY 2020-21), in spite of sale of one property being in next assessment year?
3.    Will anything change if the ready flats are sold by March 2019 i.e. in AY 2019-20 and purchase registration happens in April 2019 i.e. AY 2020-21?

6.    Worst case scenario. We do not manage to sell one or all the flats before the purchase deadline and I take a bank loan to pay to the seller. Then, I sell the flats. What happens to the exemption in that case?
7.    What happens in above if the property purchase happens in AY 2019-20 & sale of flats happen in AY 2020-21?

Regards,

Pratik

 

1. To claim exemption u/s. 54, the holding period of house property should be minimum 24 months from the date of its completion certificate.

2. As per section 54, the purchase of a new house property should be either 1 year before or 2 years after the sell of original house property; but any unutilized gain should be deposited into CGAS 1988 account before filing return of previous year.

Thank you sir

 Sir Dhirajlal Rambhia , 

My mother sold her residential house in 2012 and purchased 3 flats in 3 different locations within 2 kms apart  within 2 years of sale . she claimed ltgc benefit under section 54 for the entire sale proceeds . now income tax department has opened the case saying she cannot invest in 3 properties . what is your opinion 

1. can she invest the entire sale proceeds and claim ltcg benefit for 3 different properties in three different locations . 

2 is there any such case already existing where the claim has been accepted by law 

thanks 

rachna 

 

@ Rachna Singh ..

1. No.

2. Yes, if in the same building or for bigger family in same area, but will have search case-laws in its support.

sir when you say no you mean that she cannot invest in multiple properties or she cannot invest in multiple properties in different locations . 

'No' is as per act, which specifically says... 'Investment in A house property (though now amended to 'One residential House property in India').

But as per judgement by various courts in favour of assesses, the meaning of 'A house property' is also treated as investments in different properties, like adjoining flats combined into one, two properties in same building, two or more properties as per requirement of big joint family etc. etc.

For a layman (when we say man woman is implied ) no where its specified before 2015 that a residential house means one house . investments are made by taxpayers and cases are fought by lawyers . i really would appreciate if you can guide what steps we would need if the case is not closed or dropped by December end . please advice all steps that would be needed .as of now reassesment return has been filed AO has given in writing reasons for opening the case .next step by us would be raising the objections . i want to understand what all steps would be needed after this .thanks sir

When the reassessment u/s. 148 has been initiated, it will not be dropped till its assessment order.

Legally, AO will not accept any of the excuses, and will allow only ONE house property as deduction, and excess will be charged to capital gain tax.

So, first check the amount of tax liability that would arise, and take call for future action.

For that better consult any local experienced CA to properly guide you.

 

Thank you sir for your valuable time , although my question regarding all steps to proceedings still is not clear . I wish some one as you or you could give a simple guideline to the PROCESS of reassessment to assessment order for layman like us because if we understand the process step by step 

Originally posted by : Dhirajlal Rambhia
	When the reassessment u/s. 148 has been initiated, it will not be dropped till its assessment order. Legally, AO will not accept any of the excuses, and will allow only ONE house property as deduction, and excess will be charged to capital gain tax. So, first check the amount of tax liability that would arise, and take call for future action. For that better consult any local experienced CA to properly guide you.

 

I wish to know whether individual having two residential house properties  sells one of them and purchase another residential house property.can he claim deduction u/s 54.Is there any restriction in the law that person claiming exemption u/s 54 should not own another residential property on the date of sale of the residential property for which he wants to claim exemption u/s 54