LONG TERM CAPITAL GAIN HOUSE,ADVANCE RECEIVED DATE RELATION?

On Tuesday, December 16, 2008 | 5:59 PM

Qus:I bought a flat in 2005( advance paid in Nov'05, Agreement dated Dec'05 and registration in Jan'06). Purchase value was Rs 32.56 lakhs.I wish to sell this flat now for Rs 71 lakhs. Please advise the following:

  1. For fulfilling LTCG, which date should I take the advance cheque from the buyer?
  2. By when should I have to invest the capital gain in another property?
  3. And how much?
Raaja Debnath
The above question has been asked by Raaja and it is a interesting one so I am expressing my views on the above ,if any body have different view ,then he can express it in comment section.

First of all ,have a look on some income relevant income tax provisions

Capital gain chargeable section:(45)
(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections ................................., be chargeable to income-tax under the head Capital gains, and shall be deemed to be the income of the previous year in which the transfer took place.
so from the above provision, important conditions which should be fulfilled to make a transaction chargeable under capital gains
  1. Profit and gain should arises from transfer of assets
  2. Asset should be Capital Asset
  3. Transfer should be effected In previous year.
so Important condition relevant to the present question is Effective Date of transfer.

Transfer has been defined u/s 2(47) of the income tax act .
transfer, in relation to a capital asset, includes,
  • the sale, exchange or relinquishment of the asset ; or
  • the extinguishment of any rights therein ; or
  • the compulsory acquisition thereof under any law ; or
  • in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment or
  • the maturity or redemption of a zero coupon bond; or
  • any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A 25 of the Transfer of Property Act, 1882 (4 of 1882) ; or
  • any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Normally possession of immovable property is handed over on or after date of registeration but in some cases the possession may be given after the payment of the whole amount, In these type of cases which is covered under the section 53A of the transfer of property act,1882,transfer will be considered even the registration is yet to take place.

Ans-1
In your case ,I assume that you have taken the possession of the flat after the registration so the transfer takes place in January ,2006 so there years will be completed in January 2006 .so on the basis of above,in my opinion to get the benefit of the long term capital gain ,you should transfer asset in January 2009.but it does not mean that you can not receive advance from the buyer ,means you can take advance from the buyer but you should not transfer the asset(flat ) before completion of three year from date of acquisition date of the Flat ,to take the benefit of LTCG.

Ans-2
if transfer takes place before the 31st march you may invest amount under any of the two section ie 54 in another residential house or in bonds u/s 54EC the time limit is given as under


under section 54
  1. purchase of residential house within one year befor the the transfer or within 2 year after the transfer.
  2. construction of house within three year from date of transfer.
Under section 54EC
  • invest in bonds within 6 month from transfer of asset(flat)
In both cases 54 or 54EC if amount is not utilized for above purpose before the due date of filing of income tax return (in your case it will be 31 july 2009 ,if flat is transferred before 31.03.2009 ),then underutilized amount should be deposited in Capital gain account scheme,1988 in bank and should be withdrawn and used from that account for purpose and within date as explained above.

Ans-3

in above case Long term capital gain will be calculated as below (if date of transfer is before 31.03.2009)


71.00 lakh =Net consideration
38.13lakh= less:indexed cost of acquisition (32.56 X 582 /497=38.13)
========
32.87 lakh=long term capital gain
=======


so the amount which you should invest in residential house u/s 54 or in bonds as available under 54EC is 32.87 lakh rs.Means no need to invest whole of the consideration.of course you can invest more but if amount invested is less than the capital gain amount then balance long term capital gain will be taxable in your hand.one more point you should note that after investing in any of the above option ,if new house/bond is transferred before three year than whole LTCG exempted in this transaction will be taxable in the previous year in which transfer of new house/bonds takes place.
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6 comments:

  1. 1. Please clarify following Capital Gains queries :-
    a) The CAPITAL GAINS rules say that if one sells a residential property within 3 years of buying it then it falls under SHORT TERM CAPITAL GAINS under which one HAS to pay the Tax whereas after 3
    years it qualifies for LONG TERM CAPITAL GAINS whereby one can avoid paying Capital Gains Tax by re-investing in another residential property within three years which i am doing.
    b) However the doubt is from which date one can consider the start of the 3 years of purchasing the property ? Various opinions are as follows:-
    i) 3 years is from Date of Allotment which is 30-08-2006, Or...
    ii) 3 Years is from Date of Buyer's Agreement which is 27-12-2006 Or... iii)3 Years is from period proposed by Vendor/ Developer for property to be delivered to Buyer in the Buyer's Agreement which in this case is 24 months + 3 months grace period due to Force Majeure circumstances. This means that the Posession of the Plot was due to be delivered after 24 months + 3 months grace period latest by 26 March,2009 .
    From the attached File name: ACTUAL PAYMENTS MADE VIPUL LTD PLOT No. E-48, it is IMPORTANT to NOTE that till 26-11-2007 95% of Basic Sale Price +100% EDC+100% IDC amounting to Rs. 69,69,331-20 was already PAID.
    Some say the following & disagree with above 3 interpretations(which are in our favour as they make us qualify for LONG TERM CAPITAL GAINS):-
    iv)3 years is from date of REGISTRATION of CONVEYANCE DEED which is 07-05-2010 in our case
    v)3 years is from date of POSESSION which is 01-06-2010 in our case.
    The last 2 interpretations in points iv) & v) work against us Qualifyifying for LONG TERM CAPITAL GAINS as it falls into SHORT TERM CAPITAL GAINS inviting 30 % TAX.

    2. The above creates a doubt on whether our executing the Sale Deed & Transfer of the Plot scheduled in the Gurgaon Courts on 21 Sept.2012 exempts me from availing LONG TERM CAPITAL GAINS by re-investing in another residential property within three years which i am doing.

    3. If we don't qualify for Long Term Capital Gain then am i liable to pay 30 % TAX on the gain which will amount to Rs 57.3 Lakhs as Plot was bought for approx Rs 78 Lakhs & being sold for 2.69 Crores hence gain is 1.91 Crores on which the Tax @30 % would be Rs 57.3 Lakhs approx ?

    ReplyDelete
    Replies

    1. My First advice to you ,take services of reputed tax professional as the amount at risk is very heavy .

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  2. 4. In continuation of above previous queries on Capital Gains & ASSUMING i qualify for LTCG please clarify the following :-

    A.Was Allotted a residentilal Plot on 30-08-2006.The Buyer's Agreement was made on 27-12-2006. 95 % Sale Price+100% EDC & IDC were paid by 26-11-2007 but Conveyance Deed was Registered on 7-05-2010 by paying balance 5 % on 17-03-2010 & Registration charges on 15-03-2010.
    Posession received on 01-06-2010. Total Payments were Rs. 77,89,457-20 excluding Maintenance A/c Payments & Rs. 78,72,752-20including Maintenance A/c Payments .

    B. I am Selling the Plot on 21-09-2012 @ a Total Sale price of Rs 2,69,10,000.
    C. I have booked a new Construction linked residential house costing approx 5 crores of which i will need to pay approx 2.04 Crores by Dec,2012 from Sale proceeds of Plot.

    D. Please clarify the following :-
    Q1) a) Can Indexed value of Plot be taken from date of 1st Payment/Booking on 30-10-2005 for 17,01,000 & similarly for subsequent payments totaling Rs 36,54,360 made before Allotment Letter dated 30-08-2006 Or from Date of Allotment for these payments made before allotment on 30-08-2006 ?
    b) Please calculate Indexed Value of Plot in accordance with correct answer to above questions & ACTUAL PAYMENTS MADE attached herewith?
    c) Please calculate CAPITAL GAINS on the Sale of this RESIDENTIAL Plot @ a Total price of Rs 2,69,10,000 on 21-09-2012.

    Q2) Do i have to reinvest only Capital Gain on Indexed Value Or FULL Sale value from Plot into new house ?

    Q3) a) What are implications if my wife is 1st holder & i am 2nd Joint holder in 2 Residential Flats at the time of SALE of the Plot on 21-09-2012 ?
    b) If one can only posess ONE Residential Property at time of Sale of old Plot scheduled on 21-09-2012 then before that can i make a GIFT DEED OR a SALE DEED & get it Registered before 21-09-2012 ( date of Registration/ Transfer of my old Plot to Buyer ) .
    c) What would be implications of Gift Deed Vs. Sale Deed ? Presently my wife & me are getting 50 % RENT each from the Flat i intend GIFTING Or SELLING to my wife depending upon your advice with reasons to Q 3) b) above ?
    d) After I GIFT my 50% share to my wife will it be treated as a Transfer / Fresh Registration that will prevent her from selling it for another 3 years to avoid paying Capital Gains Tax ?

    Q4) If Posession of New Property being purchased is not given by Builder within 3 Years of sale of my old Plot on 21-09-2012 (even though the Buyers Agreement dt 16-08-2012 for new construction proposes to hand over Posession in 30 months+ 3 months grace period from commencement of development work) then what are the Capital Gains implications ?

    Q5)What is the criteria & difference when one only pays approx 20.6 % Tax Vs.30.9 % Tax with relationship to my case ?

    Q6)What should i do in my circumstances ?

    Note: Have read some CAPITAL GAINS Short vs Long Term & Posession Delay over 3 years for new property being purchased with Capital Gains proceeds/ funds INCOME TAX CASES in our favour.

    Regards,

    ReplyDelete
    Replies

    1. I am Giving reply to few queries raised by you.
      Ans -1: Indexation is taken from date of allotment ,payment dates has little significance.
      Ans 2:As you have sold Plot(asset other then residential property) you can claim 54EC or 54F or combination of both .
      In 54EC capital gain is to be invested and 54F net sale value is to be invested .
      Ans-3:you should have only one house at the time of transfer applies only in case of 54F ,if you have intention to claim 54F then you should sell one house to other person /wife for consideration.About gift I am not sure.You can claim exemption u/s 54EC up to 50 lakh

      Ans 4 : You should avoid controversies
      ANS-5 Query is not clear
      Ans-6 :Consult reputed tax consultant

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    2. Please don't conclude on the basis of my replies

      Delete

    3. Mr Raja Babu, Appreciate your revert.

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