MJ (Owner) 29 April 2013

Capital gain exemption via under-construction property

Hi Experts,

I have consulted some CAs offline and got different replies. So need someone with expertise on capital gain to answer my query.

I sold a residential house and parked the funds in capital gains account. To avoid tax on Long term capital gain, the capital gain needs to be reinvested within 2 years in resale or 3 years in under construction property. I have the following queries with regard to under-contruction:

#1 Do I have to invest some amount of capital gain before 2 years and then I get 1 more year for construction and to utilize the whole amount? OR I can start using the capital gain after 2 years...say buy a plot even after 2 years and then start constructing and consume whole of capital gain after 2 years and before 3 years?

#2 For above purpose, i.e. under-construction property, if I have sold my property in April 2011 and if i buy a DLF apartment from a reseller X and this apartment is still under-constrution from DLFs point of view, I mean estimated possessions/completion time is say Dec 2013. Then can i buy this apartment after April 2013 (2 years of sale) and before Dec 2013(date of construction completion) to get exemption?

Any expert advice would be highly appreciated.

Thanks in advance,

Ramesh

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4 Replies

Vineet (Director) 11 May 2013

1. You can construct new residential house within three years. So evn if construction starts after 2 years, still exemption u/s 54 is available if you spend entire capital gain amount within three years.

2. if you are buying an under construction flat of DLF, you are actually purchasing a house and not constructing it. Hence benefit of extended period of 3 years is not available in such case.

Rupesh (Proprietor) 31 July 2013

Dear Sir,

As per your point 2. if buying a flat from DLF/Builder will be treatred as purchase of house not construction the requirement of completion of construction within 2/3 years should not arise. What will happen if I have paid full amount of LTCG to DLF within 2 years (partly through bank loan) but the possession is not given to me even after completion of 2/3 year. Please clarify.

Vallabh Parmar (Advocate) 17 August 2013

1) AS YOU HAVE SOLD PROPERTY IN APRIL 2011 THEN AS PER PROVISION OF SEC 54 OF IT ACT YOU HAVE TO DEPOSIT ENTIRE CAPITAL GAIN IN BANK ACCOUNT IN CAPITAL GAIN SCHEME . BEFORE DUE DATE OF FILING THE RETURN I. BEFORE 31/7 /2012

2) YOU CAN PURCHASE A READY MADE HOUSE WITHIN TWO YEARS FORM DATE OF SALE AND ENTIRE CAPITAL GAIN SHOULD BE INVESTED IN SUCH NEW PURCHASED HOUSE. I.F NEW HOUSE COST IS LESS THAN AMOUNT OF CAPITAL GAIN THEN PROPORTIONATE AMOUNT IS ONLY EXEMPTED .

3) YOU CAN PURCHASE A HOUSE UNDER CONSTRUCTION WITHIN THREE YEARS FROM DATE OF SALE OF ORIGINAL HOUSE .AS THERE IS NO DIFFERENCE BETWEEN HOUSE BEING CONSRTUCTED BY YOU UNDER YOUR SUPERVISION OR HOUSE UNDER CONSTRUCTION BY A BUILDER .

But make it sure that entire amount of capital gain is paid to builder within given 3 years

IT WAS SO HELD BY VARIOUS HIGH COURT eg

CIT VS SMT BHARAT C KOTHARI (2000) 244 ITR 352 (CAL) See Attachment

Please also make it sure that as per agreement possession of flat is to be given before expiry of 3 years. Once agreement specifically says that possession will be given in your case before May 2014 . then ITO cannot deny exemption of capital gain us 54 of I T Act.

Attached File : 938126422 case law where house under construction was purchased.docx downloaded: 695 times

a singh (NA) 23 December 2014

I sold off an un-construction flat in Apr,2014 that I had bought in June,2010 for a value of Rs.80.4 Lakhs, I had bought flat for Rs. 48 Lakhs+ ST(as levied by builder for un-construction property)

My purchase for this flat was funded by a Home Loan As the loan was only partially disbursed(around 34 Lakhs), the Bank did an internal transfer of loan in their books to new buyer and balance 46 Lakhs was paid to me.

As I am still searching property to invest, I have deposited the 46 Lakhs(Profit+My investment) in to Bank FD.

Please advise, how I take care of LTCG(if I need to pay) and Tax on Fixed Deposit(Bank is already deducting TDS on FD)