28.02.2017 Suggestion on Clause 3 of Finance Bill 2017 – Section 2(42A) – Reduction in holding period in case of immovable property, being land or building or both, to qualify as long term capital asset – Consequential amendments to be made in sections 54, 54B, 54D and 54F

The Finance Bill, 2017 proposes to amend section 2(42A) so as to reduce the period of holding from the existing 36 months to 24 months in case of immovable property, being land or building or both, to qualify as long term capital asset. The same is done to promote the real estate sector and to make it more attractive for investment.

Issues

(1) Consequential amendments for reducing the holding period of immovable property from 3 to 2 years is required to be made in sections 54, 54B, 54D and 54F in line with the proposed amendment in section 2(42A). At present, these sections restrict transfer of new assets purchased for 3 years.

(2) In order to avoid litigation, clarification is required on whether leasehold rights and tenancy rights would be considered to fall within the meaning of “land and building” to avail the benefit of reduced holding period for being treated as a long-term capital asset.

(3) Ambiguity may also arise with respect to flats in a co-operative society i.e. whether shares in a co-operative society qualify within the meaning of immovable property being land or building or both to become eligible for lower holding period of two years

Suggestions:

It is suggested that:

(1) Consequential amendments may be made in sections 54,54B, 54D & 54F so as to enable the holding period of the new asset purchased to be reduced to 2 years from 3 yearsin case of land and/or building.

(2) Circular may be issued/ Explanation may be inserted to clarify that leasehold rights and tenancy rights are also to be treated as  falling within the meaning of “land and building” for the purpose of availing the benefit of reduced holding period for being treated as a long-term capital asset.

(3) In order to avoid any interpretation issue, it may be clarified that flats in a co-operative society are also covered within the meaning of immovable property being land or building and are hence, eligible for lower holding period of two years for computation of capital gains.

Source- ICAI Post-Budget Memoranda-2017

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Tags : Budget (1440) Budget 2017 (316) Capital Gain (301) ICAI (2053) section 54 (95) Section 54B (5) Section 54F (115)

5 responses to “Reduce 3 Year limit under section 54, 54B, 54D and 54F to 2 Years”

  1. Kapil Gupta says:

    It also needs to be clarified whether advance against property over 24 months falls within the meaning of “Land and Buildings” or better to say advances to be equated accordingly which is at present applicable.

  2. Dr Ram says:

    If the sale proceeds are used for educational purposes, the capital gains tax should be exempted to the extent used which will benefit all.

  3. V.k.dadoo says:

    Not agreed. This will lead to litigation cases.

  4. paresh parekh says:

    very informative write up. Also, Govt. should make another important change in levy of capital gain tax in the case of sale of residentail property by assessee, for sponsoring his / her children for higher education abroad. Not all parents can opt/ afford higher education loan, and in case in such a situation if he/ she sales residential property, then capital gain arising on such transactions should be exempted, to the extent of higher education expenses incurred by him/ her. A suitable provisons and rules can be framed so that a genuine transaction can be exempted.

  5. DEEPAK DANG says:

    Disagree as reduction in period of long term investments & decrease tax collection.

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