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Section 54 question - nri

02 September 2013

Hi.

I am a NRI.

I have one property in Ahmedabad.

I just registered an agreement for a property to be constructed (under construction) in Mumbai under 20-80 scheme. I paid the 20% to builder in August and bank (loan) paid balance to builder balance 75% (5% will be paid by bank to builder on possession). We registered the property agreement in August as well. I do not pay installments to bank until 30 months from August 2013 (till that point builder will pay interest on the loan amount) after which my installment (including interest) payment will start.

My question is: If I want to sell the Ahmedabad property and want to claim Section 54, by what period should I sell the Ahmedabad property? I won't get possession of the new house before January 2016.

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9 Replies

CA Kedar Sakhardande (Proprietor) (942 Points)
Replied 02 September 2013

For claiming exemption under section 54 an asset should be a long term capital asset.

The asset (house property in your case) will be counted as a long term capital asset if it is held for more than 3 years from the date of possession that is Jan-16. so you need to hold the asset for more than 3 years from the date of actual possession

Regards

CA Kedar

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Pratik Vijay Doshi (44 Points)
Replied 02 September 2013

Hi CA Kedar, My question was regarding selling the property in Ahmedabad. I have already made purchase agreement of the under construction property. But I have not yet sold the Ahmedabad property. Can I still claim the section 54 if I sell the Ahmedabad property, say end of 2015 and repay the loan with the sale proceeds, with a stand that the new property is still under construction and can be considered as purchase only on possession, which can then be considered as new property built/purchased after selling the old property. Fyi, Ahmedabad property is more than 3 years old. Regards, Pratik

Pratik Vijay Doshi (44 Points)
Replied 03 September 2013

All, Please reply. Regards, Pratik

Siddharth (Student) (128 Points)
Replied 03 September 2013

Hi Pratik,

Before the construction of property is completed in Mumbai.....the sale of Ahmedabad property should be done.

Provision is that the construction should be completed within 3years from the sale of property. There is no provision stating that exemption cant be availed if the construction is started before the sale of old property.

As you said that you will get possession on Jan 2016...so anytime before that date is fine. But make sure that as soon as you sell your old property...you should get the possession of new property within 3years time.

Refer case CIT vs R.J.SUBRAMANYA BHAT (1987)

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Pratik Vijay Doshi (44 Points)
Replied 04 September 2013

Thanks Siddharth. This is exactly what I required.

A few more questions, if you or anyone else can reply as well please.

When I sell the Ahmedabad property, I will use the full sale proceeds to repay the bank loan which I took.

The bank have already paid to the builder the loan amount (which is higher than the Ahmedabad property) in August 2013.

The sale agreement was executed and registered in August 2013. Allotment letter was also issued in August 2013.

So, in effect, except for possession, all the formalities with builder are over, including payment to him.

Based on above, can you confirm that I can claim exemption u/s 54, even though I am actually going to repay the bank loan with the sale proceeds and not going to pay the ale proceeds to builder (assuming sale of old property is done within 3 years before the construction of new house is completed/possession provided).

Secondly, being a NRI, can i claim indexation benefit on sale of old flat (which is long term asset).

Lastly, will the buyer of my old flat deduct TDS from the sale proceeds since I am a NRI (When I bought the old flat, my tax status was resident. How would the buyer know that I am a NRI and thus deduct TDS)? If yes, how much %?

Regards,

Pratik

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Pratik Vijay Doshi (44 Points)
Replied 04 September 2013

One last tricky question:

I am staying outside India. My parents are staying in Mumbai. and the flat in Ahmedabad is vacant/let out.

Per the condition of section 54, the old property should have been used for purpose of residence of myself of my parents, which is not the current case.

Do the IT authorities ask for any proof that I/my parents are residing in the old flat?

Siddharth (Student) (128 Points)
Replied 04 September 2013

Hi,

First thing is Sec 54 is independent of Residential Status. So doesnt matter if you are NRI.

1. Nexus of sale consideration from which eligible investment made is not required.. i.e., there is no provision saying that only the sale proceeds from sale of old property are required to be invested in new property. Therefore in your case exemption can be availed.

2. Regarding TDS, as long as the transfer of asset takes place basing on market value tds need not be deducted.

3. Lastly that old property need not be self occupied, so you can avail exemption u/s 54. You can go through the section.

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Pratik Vijay Doshi (44 Points)
Replied 05 September 2013

Thanks Siddharth.

Please advice if I get indexation benefit since I am NRI.

Regarding your reply in point no. 1, do we have any case laws to support this that repayment of bank loan used for purchase of new property which is being constructed, from the sale consideration, can be used for section 54 exemption.

Regarding your reply in point no. 3 pertaining to self occupied... check the below link and let me know if I misunderstood it:

https://law.incometaxindia.gov.in/Directtaxlaws/act2005/sec_054.htm

Also, do we have any case law supporting the argument that the property need not be self/parent occupied and could have been empty or let out before.

Regards,

Pratik