Saurabh..V (Law Consultant) 18 February 2018

Capital gain tax - sale of property in delhi

Dear Learned Members,

I plan to sell off one of my property in Delhi. As per current circle rates the total income on papers would be somewhere about Rs.25L.

Now, one of my friend suggests that this income will be taxed as Capital Gain Tax. He also advised that if I plan to keep this "full" amount in my bank, then I will be exempted for some partial amount that I have spent in purchase and construction of the house. This exemption will be based on indexation value assessed by a C.A. On remaining balance, I will be charged Capital Gain Tax.

I want to know, if I use balance (unexempted) amount to purchase another property and keep the exempted amount in my bank, then will I be charged any tax?

I want exemption from tax for the earning from sale of this property. I need some money in bank for future use for family needs and remaining I will reinvest in property. Can I do partial use of income to keep in bank and remaining balance to purchase in other property without paying any Capital/Income Tax?

Please advice!

//Saurabh..V

Reply Follow

3 Replies

R.Ramachandran (Advocate) 19 February 2018

First indicate when (in which year) the property was purchased?

You say you want to sell off ONE OFyour properties. That means you have more than one property. Please indicate whether all the properties are residential properties or some residential properties and some land.

How many residential properties that you have as on date. (This will have relevance to know whether you will get opportunity to save capital gains tax or not)

Only after knowing the answer to the above points, it will be possible to give answer to your query.

Ms.Usha Kapoor (CEO) 19 February 2018

If you proceed in the following way you can get exemption from longtime capital gains tax.If you buy a single or one residential property the entire cost of thatproperty is*xempt fromLong Term Capital gainstax.if you buy more than one residential house law is amended here if these multiple units are treated as single units or part of same residential property It would be exempt from tax whatever the cost of these flats maybe.

Long-term capital gains tax: Exemption on buying multiple houses

A home buyer can claim exemption on long-term capital gains tax, even if he is investing in multiple units, subject to certain conditions

According to Indian tax laws, an assessee is entitled to claim exemption on long-term capital gains tax, on sale of a property or any other asset, if s/he purchases a residential house. However, there are a few grey areas in this exemption.

Number of houses, in which the investments can be made

A question that arises, is whether the assessee can invest in more than one residential house and claim capital gains exemption under Section 54 or 54F. In Gita Duggal case (in 257 CTR 208), the Delhi High Court held that the expression ‘a residential house’ should be understood in a sense that building should be a residential one and that the word ‘a’ should not be understood to indicate a singular number. The court interpreted the word ‘a residential house’ to mean any residential house, in contradistinction to any ‘commercial house property’. Consequently, tax payers were able to claim long-term capital gains tax exemption by investing in more than one house property. However, an amendment was made to the income tax laws, which replaced ‘a residential house’ with ‘one residential house’, with effect from April 1, 2015.

Position, if the investment is made in more than one flats to be used as single residential unit

However, even after the amendment, a question arises – is it possible for one to claim long-term capital gains tax exemption, if more than one residential units are purchased, which are used as a single residential unit by the family? The answer is provided by two decisions.

The first one is that of CIT vs D Ananda Basappa 309 ITR 329 (Kar.), where multiple flats were purchased in the same complex and were used as one unit. In this case, the tax exemption was allowed. A special leave petition filed by the income tax department against this decision was also rejected by the Supreme Court.

Hence, it can be reasonably inferred that even after the amendment of Section 54 and 54F, providing for exemption from long-term capital gains tax, only if the investment is made in one residential house property, one can still invest in more than one house and claim the tax exemption, provided the taxpayer can prove that all such flats are used as a single residential unit by the family. In the abovementioned case, two residential units were purchased, which were separated by a strong wall and were purchased from two different vendors under two separate sale deeds. The exemption was still granted to the tax payer, because both the flats were capable of being used as a single residential unit.

The second decision, which was delivered after the amendments were made, was announced by a Special Bench of the Mumbai Tribunal, in the case of ITO vs Suseela M Jhaveri 26 (ITAT Bom). It was held that if the assessee has purchased more than one residential house and the houses are in different locations, then, the assessee could claim exemption only in respect of one house. However, the taxpayer would be entitled to exemption in more than one unit, if the two adjacent or continuous units are converted into one residential house, and the two units are intended to be used as a single house for the family’s residence.

Saurabh..V (Law Consultant) 19 February 2018

Thank you for enlightening me on the topic. Please note that out of total Capital Gain, I want to keep about 60% with me in my bank for future use (for sisters marriage purpose) and invest remaining 40% in a residential property. At present I have one piece of residential land and one builder floor apartment (other than the house in question). Now, please advice if out of whole Capital Gains, 60% amount is exempt as per indexation calculations, then can I keep this exempt amount in my bank without paying tax and invest balance 40% to purchase residential property?