Long term capital gains (Sale of Property)

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Balaram asked 8 years ago

Your article on Capital Gains Tax was very interesting and informative. I seek your views and clarifications on the following: My brother R has a vacant plot of 2400 sft and also owns a flat of 900 sft a different place. Another brother N has 1200 sft old house in a land of 2500 sft. He wants to demolish the house and construct apartment with 3-4 flats. Now, R wants to sell the vacant land and reinvest major portion of the sale proceeds in acquiring a flat to be constructed by N and invest the balance in CG bond. Please clarify on the stipulation “Assesse should not own more than one residential house prior to this investment.” Considering the fact that R owns a vacant land and also a residential flat now, on sale of land whether R is entitled to avail CGT exemption on the amount to be reinvested for acquiring another flat. The plot was purchased before 1990 and what are the types of expenses allowed as cost of improvements till 2001 and after 2001? (Whether he can claim exemptions for the expenses for fencing (2 times), periodic maintenance of the plot, construction of compound wall, incidental charges etc) Supposing, R opts to execute Settlement deeds in favour of his wife and daughter - On sale of land by the Settlees - If funding the construction project of N is done by one of the settlees and CGT exemption claimed on the value of flat to be allotted; Whether the other settlee can also claim exemption by investing her share in the Capital Gain Bond or another flat?

Balaram replied 8 years ago

With regard to the interpretation of the stipulation “Assesse should not own more than one residential house prior to this investment.” I still has a doubt. Considering that it has not been mentioned as any other residential house other than the one to be acquired, it means that the assessee can own one residential house other than the own to be acquired.whether exemption will be allowed or not based on this interpretation.
Settlement deed is conveyance / transfer of title and interest of the property during the life time of the owner (settlor) to family members at concessional stamp duty and registration fee. In tamilnadu it is Rs 29,000/- at present. There is no consideration involved.
What I mean by funding the construction, is investing for the construction cost of the project.
My query is :
Supposing R executes a settlement deed in favour of his wife S and daughter L who do not have flats in their name, then both can jointly sell the vacant land.
In that situation, if S reinvests her share in the flat to be constructed by N and claim CGT exemption on the value of flat to be allotted, whether L can also claim CGT exemption for her share by depositing in CG bond or by reinvesting in another flat ?

2 Answers

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Sreekanth Staff answered 8 years ago

Hi, 1 - Yes, Taxpayer should not own more than one house on the date of transfer, other than the one bought for claiming exemption under section 54F. As Mr R already owns a residential flat, he is not eligible to save CGT exemption by selling his vacant plot and re-investing in one more Flat. 2 - The mentioned costs can be considered for cost of improvement (indexation benefit can be claimed). May I know what do you mean by settlement Deed? Also, unable to understand this point - ' If funding the construction project of N is done by one of the settlees and CGT exemption claimed on the value of flat to be allotted; Whether the other settlee can also claim exemption by investing her share in the Capital Gain Bond or another flat?' Related articles : https://www.relakhs.com/how-to-save-capital-gains-tax-on-sale-of-land-house-property/ https://www.relakhs.com/sale-gifted-property-capital-gains/

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Sreekanth Staff answered 8 years ago

Hi, Your query is : Supposing R executes a settlement deed in favour of his wife S and daughter L who do not have flats in their name, then both can jointly sell the vacant land.
In that situation, if S reinvests her share in the flat to be constructed by N and claim CGT exemption on the value of flat to be allotted, whether L can also claim CGT exemption for her share by depositing in CG bond or by reinvesting in another flat ? My Reply : Yes, this can be done. Gift deed can be considered in place of Settlement Deed. Also, suggest you to kindly consult a CA as well. Related articles : https://www.relakhs.com/real-estate-property-transfer-deed-types/ https://www.relakhs.com/gift-income-tax-rules-detailed-guide/

Beniparveen replied 8 years ago

Hi Srikanth
My father has sold a residential house in June 2018 for 58 lakhs. He bought it in 1998 for 2 lakhs and cost of construction @ 3 lakhs. In 2012 he took home building loan from his office for improvement @ 2.25 lakhs. My questions are:-
1. Cost of indexation and capital gain arising out of the sold property.
2. Can my father buy plot in joint name with my mother also?. Will capital gain tax exemption be given in that case.
If the whole capital gain is reinvested in buying of plot, is it necessary to construct the plot within 3 yrs?

Sreekanth Staff replied 8 years ago

Hi..Suggest you to kindly post your queries as a new Question (separate thread). As, our Q&As are sent as emails to the reader who has originally created this thread. Thank you!