Mr. A acquired a shop as on 01-01-1991 for Rs.60000 in his name. Mr. A was doing business in that shop and was claiming depreciation on that shop.
Now he is planning to sell his shop for Rs.25 lacs in the month of August -2010. He is planning to purchase a residential house for Rs.22 lacs. Expenditure expected to acquire that are Rs.3 lacs. He want to get register the title deed of residential house in his wife in order to avail benefit of lower stamp duty in case of ladies. What may be tax planning in this case.
In my opinion the tax planning in this case may be as follow:-
Section 54F provides exemption for capital gain earned on transfer of a Long Term Capital asset other than residential house, if a residential house
Ø is purchased within one year before or two years after sale of Long term asset or
Ø is constructed within three year after sale of long term asset.
In this case the shop is long term capital asset as assessee hold the asset for more than 3 years. There shall be Short term capital gain on transfer of the shop as per section 50. But exemption u/s 54F may be allowed as it provides for gain on transfer of Long Term Capital Asset not Long term capital Gain.
So STCG = (2500000 – 19874 = 2480126), and exemption u/s 54F = Rs.2480126 (as whole sale consideration is invested)
However, in case he sales the shop and purchase the residential house in his wife name, there may be possibility not allowing exemption u/s 54F.
Another way, he may transfer the shop to his wife by way of gift. In this case the shop shall be long term capital asset and there shall be long term capital gain on this shop as not covered by section 50. Now She invest the sale consideration into a residential house. In this way she may avail exemption u/s 54F. Such capital gain shall be clubbed into the income of Mr. A as per section 64.
So LTCG
Sale consideration = Rs.2500000
Indexed cost of asset = 19874
LTCG = 2480126.00
Exemption u/s 54F = 2480126.00
Total capital gain = Nil
In this way there shall be no taxability on these transactions. Moreover, the major portion of the new residential house is purchased out of income on the asset transferred to her by his husband. So the rental income in new house or capital gain on transfer of new house shall not be clubbed in the income of Mr. A.
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