Explore Capital Gain Tax Exemption rules on property transactions with illustrative examples, legal decisions, and statutory provisions. Understand the nuances of claiming exemptions under sections 54 and 54F of the Income Tax Act based on the date of purchase, possession, or construction. Get insights into specific legal decisions and learn about the factors affecting eligibility for exemptions.
1. The Capital Gain Tax provisions are covered under sections 45 to 55 of the Income Tax Income-tax Act, 1961. These provisions are complicated & the controversy and resultant litigations on capital gains tax have thrown innumerable decisions.
In this Series of Capital Gain Tax Exemption, an attempt has been made to simplify the provisions with the help of Illustrations & the relevant legal decisions by various Tribunals & Hon’ble Courts.
2. Illustration 1: Mr. Anupam sold a residential property on 23.10.2022. He had entered into an agreement with the builder for the purchase of a new flat. The agreement date was 21.12.2020. The possession letter of the said flat was received on 23.01.2022 (within 1 year before the transfer of residential property).
2.1 Query: Whether Mr. Anupam is entitled to claim the benefit of exemption under section 54 even if the date of the agreement is more than 1 year before?
2.2 Statutory Provision: Any Long Term Capital Gain, arising to an Individual from the Sale of a Residential Property shall be exempt to the extent such capital gain is invested in the Purchase of another Residential Property within 1 year before or 2 years after the transfer of the Property sold
2.3 Legal Decision: – It was held by Pune Tribunal in the case of Sanjay Vasant Jumde v. Income-tax Officer (IT) that the new property shall be deemed to have been acquired only when it was ready, full consideration had been paid and possession was received by the assessee and, therefore, date of possession of flat would be the actual date of purchase for claiming exemption under section 54.
2.4 Answer to Query 1: Mr. Anupam is entitled to claim the benefit of exemption under section 54 as the possession letter received within one year of the transfer of property.
3. Illustration 2: Mr. Bimal transferred shares on 21-8-2018. He had entered into an agreement for the purchase of a flat on 30-12-2016 and paid the consideration to the builder. Thereafter, under an agreement, the flat was transferred in his name on 18-3-2019 and thereafter a registered sale deed was executed in favor of Mr. Bimal on 28-3-2021.
3.1 Query: Mr. Bimal is entitled to claim an exemption under section 54F, though the payment for the construction of the new residential property was made 1 year before the sale of Shares.
3.2 Statutory Provision (Sec 54F): An assessee being an individual, the capital gain arises from the transfer of any long-term capital asset, not being a residential house, and the assessee has within one year before or two years after the date on which the transfer took place purchased, or has within three years after that date constructed, one residential house in India, he is entitled to the benefit under section 54F of the Act.
3.3 Legal Decision: In the case of M. George Joseph v. Deputy Commissioner of Income-tax, Circle-12(2), Bangalore, it was held by the Hon’ble HIGH COURT OF KARNATAKA that to claim an exemption under section 54F, the same sale consideration doesn’t need to be used for construction of a new house property. The payments made one year before the date of the transfer of shares will not make the assessee disentitled to claim an exemption under section 54F.
3.31 It is pertinent to note that exemption under section 54 is dependent on the date of acquisition of the property and not on the date of payment made in respect of such property.
3.3.2 It is also held that the flat under an agreement to sell in respect of undivided land and an agreement to build is considered as construction (not purchase) of a residential house.
4. Illustration 3: Ms. Charu sold residential flats on 26-9-2022 She had purchased land on 27-1-2020 and constructed a house thereon. She claimed exemption under section 54 on account of construction expenses only which were incurred within one year prior to the sale of flats.
4.1 Query: Whether Ms. Charu is eligible to claim under section 54, the expenditure on the construction of the house, incurred within one year before the sale of the flat.
4.2 Legal Decision: It is held by Hon’ble Allahabad High Court, in the case of CIT v. H K that “Exemption on capital gains under section 54 cannot be refused merely on the ground that construction of new house had begun before the sale of the old house.
5. Illustration 4: Mr. David sold an old residential house property and within three years from the date of such sale, constructed a new residential house on the land. The said land was purchased three years prior to the sale of the old property.
5.1 Query: Whether the cost of a new residential house would necessarily include the cost of land, cost of materials used in construction, cost of labour, and any other cost relatable to the acquisition and construction of a residential house? If such land was purchased three years prior to the sale of the old property, then also the cost of land will be included in the cost of new property for exemption under Sec 54?
5.2 Legal Decision: It is held by the Hon’ble HIGH COURT OF MADRAS in the case of C. Aryama Sundaram v. Commissioner of Income-tax-3, Chennai that Section 54(1) is specific and clear. It is the cost of the new residential house and not just the cost of construction of the new residential house, which is to be adjusted. The cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of labour, and any other cost relatable to the acquisition and/or construction of the residential house. n. The said section does not exclude the cost of land from the cost of a residential house
5.2.1 Further, it is axiomatic that section 54(1) does not contemplate that the same money received from the sale of a residential house should be used in the acquisition of the new residential house.
5.2.2 If the Legislature has intended that the very same money that had been received as consideration for the transfer of a residential house should be used for the acquisition of the new asset, section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer.
5.2.3 It is also not a requirement of section 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. The construction should be completed within the prescribed time.
To be continued….
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I sold flat on 15 June 2023 which was purchased (registration done) on 25 Oct 2018 and builder gave me possession of this flat on 01 sept 2021. Then what is the date of acquisition/purchased of flat is it 25 Oct 2018 or 01 Sept 2021. Please guide me it was help me to file a return.
IN MY CASE I SOLD FLAT WHICH REGISTRATION DONE ON 25OCT2018 AND POSSESSION GIVEN BY BUILDER ON 21JULY2021. AND I SOLD FLAT ON 21JUNE2023. THE N WHAT WILL BE THE DATE OF ACQUISITION/PURCHASED IS IT 25 oCT 2018 OR 21JULY2021.
I own a residential flat which I am planning to sell in Jul 2024. I am estimating if it will result in a Capital gain or Loss and the Purchase Date or Acquisition Date will determine this. I had made a booking with builder in Dec 2012 with a booking amount of 1L. A Sale Agreement and a Construction Agreement between me and builder was signed and registered in Jan 2013 and 90% of total cost was paid. Another 5% was paid in Feb 2014. However, due to subsequent disagreements, there was a delay and final payment, Sale Deed Registration and possession handover happened in July 2016.
In terms of indexation what should be considered as purchase date? With 2013 as the date, it would be a Loss but considering 2013, there would be some gain.
Builder had demanded a penalty for a delayed disbursement from bank in Jan 2013 which was also paid along with final payment in July 2016. Can that be included in cost of acquisition.
Thanks in advance to help me understand this better.
Hello, I purchased a plot in Dec 2021 for 75 lacs. Construction of house started on the plot in Dec 2022. I sold my current flat in Aug 2023 to fund the construction which resulted in capital gains of 130 lacs after deducting indexed cost of flat. The house will be ready in July 2024 at a total constuction cost of 90 lacs. Can I get a exemption of LTCG tax since the total cost of the house will be 75+90=165 lacs which is higher than the CG of 130 lacs?
Hi,
I am an NRI, booked a flat in 2008 in preconstruction plan (Rs A). I did flat payments till 2014 and got possession in 2015. now I want to sell the property. sale price (Rs A * 3 approx)
– My question is what is the purchase date in order to calculate CGT? 2008 or 2015?
– Will there be any CGT?
I have booked under construction flat on 15-01-2020.
thereafter sold my old flat and concluded on 09-05-2022. there is gap of 29 months. And I will get the possession of new flat of March 2024.
please let me know whether I am eligible for decoction u/s 54.
I am a non resident indian living in US for over 20 years. I am selling my 1983 built single family home this month which will have 20% tax withholding. My question is about the date when capital gains kick in? 1) Is it the date when I sign MOU with the buyer and receive full payment this month or when I sign for transfer the ownership of the house which will require some authority approvals which may take another year. 2) I have some investment income in India. I file tax returns to India. Will my tax liability due when I file taxes next year before which I plan to invest in capital gains exempt infrastructure bonds for 5 years. Is that OK?
Thank you
Arvind
I am a non resident indian living in US for over 20 years. I am selling my 1983 built single family home this month which will have 20% tax withholding.
My question is about the date when capital gains kick in?
1) Is it the date when I sign MOU with the buyer and receive full payment this month or when I sign for transfer the ownership of the house which will require some authority approvals which may take another year.
2) I have some investment income in India. I file tax returns to India. Will my tax liability due when I file taxes next year before which I plan to invest in capital gains exempt infrastructure bonds for 5 years. Is that OK?
Thank you
Hello Ma’am,
I have an apartment in Pune and that is 9 years old. Now, I want to sell this and wish to invest all the amount in a Pre-Launch project in Pune or another Indian city, which will be completed after 7 years. Can I get a Tax exemption under 54 or need to pay tax on such transactions?
madam
I sold my old constructed house in Oct, 2020 and purchased new residential plot in February, 2021. Thereafter, I started construction on purchased plot in August/September, 2022. But it will take time for completion about 3-1/2 years due policy of State Govt./COVID 19. kindly suggest how can I get exemption from Capital Gain Tax. Is it counted from financial year or calender year. kindly clarify
Thanks for the article, madam. I have a query for a property transaction which my father is doing.
My father sold off one residential land in July 2023 (which he has bought in Mar 2006) and has capital gains of approximately 51 Lakhs. He is buying another piece of land in Aug 2023 for which the total amount is approximately 1.7 crores. The payment for this will happen in regular instalments over the next 2 years and registration will done in Mar 2026. He plans to build a house on this land once registration is done. Will he get capital gains exemption as entire payment will be done in 2 years but registration will be done after 2 years. He has the option to make the entire payment earlier as well if it helps in saving capital gains but registration will still happen after 2 years of selling the first land.
Building house on purchase of land is considered as construction of property and the time period is three years from sale of land under section 54F.
In my view, the construction of house shall be completed within 3 years in order to avail exemption.
Payment towards purchase of land itself will not be sufficient. Unless there is construction of house, the land alone will not be treated as residential property for the purpose of exemption under this section.
madam, I sold a plot gifted by my father.
it is under LTCG. I purchased a plot for half the amount. but I don’t need to build the house on it. so how can I avoid CGT. Can I buy another plot and avoid CGT totally. please advise
I sold a flat in december of SDV 42,00,000 and purchased a land in june for 660,000 Land was purchased by my father in 2001 and till now he incurred 150000 in 2005 and 50000 in 2014 but does not have a y proof of such as improvement was done in cash. the balance amount is not utiised by purchasing the house and neither deposited in cap gain account scheme till due date of filing the return and return is not filed yet but new house is purchased in August 1.can we claim indexed cost of improvement of such cost ? 2. can we claim exemption of new house when filing the return? 3. how much brokerage is allowed to be paid in cash ? 4. After the death of father, property is transfered to me but only legal expenses of NOC and lawyer fees was incurred, can i claim that as COA ?
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Ma’am,
1. My father sold a house last year in December.
2. Now he has planned to buy a new property and has registered an “agreement to sale” to buy a plot and already paid a big amount to seller ( almost same as gain from sale of his house).
3. Sale deed(Registry of property) is not yet done for this purchase of plot.
4 Can this advance payment done to seller be used to save capital gain tax by my father ?
Regards..
There are contradictory judgments available on this issue.
Majority is in favour of the taxpayer indicating that if amount has been invested , exemption shall be available even though , registry is not done within specified period.
Mam,
If a person has sold a land belonging to his dad (deceased) and has bought a land and has started constructing the house but has not utilized the entire gain amount in construction at the time of ITR filing, should he deposit the remaining amount in CG scheme or can show as if he has used the entire amount in construction. He will eventually be utilizing the entire amount for construction but since the ITR due date is sooner than the construction finish date.. should he deposit in CG scheme? Please clarify.
He shall deposit the remaining amount in Capital Gain Deposit Scheme , otherwise it will be taxable as Capital Gain.
I sold a house in Sept 22. and planning to reinvest the total capital gain in the purchase of a new flat in an understruction apartment. however the flat would be handed over by Dec 25 which is more than 3 years from the sale of the earlier house.
in order to claim for exemption under section 54, do I need to be in possession of the house or just an agreement with the builder and payment of entire capital gain by the stipulated time suffice?
Investment of Capital Gain in under construction property and and agreement is good enough to claim exemption under section 54.
There are number of judgements available where exemption was allowed even if the possession was not handed over to the assessee within prescribed period of 3 years
I sold a house in Sept 22. For saving capital gains i planned to purchase a new flat in apartment & did the agreement of sale. however the flat would be handed over by Sep 23. In order to claim for exemption under section 54, I need to deposit capital gains in capital gains savings account if i have failed to purchase before filing IT returns.
What should be done in such circumstances where i have given token amount from capital gains for purchasing a new flat & i cant deposit in capital gains savings account now. Agreement of sale before filing IT returns can be deemed as investment.
Giving token amount is not sufficed to claim exemption. Agreement of sale itself will not be treated as deemed investment.
It is advisable to deposit the amount in Capital Gain Account scheme before due date of return filing.
Sir /Madam,
I sold my old property on 06/03/2023. to save long term capital i purchased new house on 25/05/2023. When I try to file ITR 2 I filled ITR 2 schedule for sale of property and Sec 54 to get the exemption for long term capital gain when I try to next schedule fill D form I am not able to put purchase date (25/05/2023)in portal as it is allowing only upto March 2023 only.
Query : Why system is not allowing to enter New house agreement date beyond March 2023. in that case how to show the exemption.
kindly advise
thanks
You are Right. The system is not allowing the date of purchase of new house after the end of FY 2022-23.
The reason may be :- since the time period to deposit the unutilised Capital Gain in Capital Gain Scheme Account is the date of filing return under section 139(1) – Capital Gain and investment in new property can be reported in next financial year.
Disclaimer: This is my view based on logic and actual difficulty in filing the purchase details in ITR 2
I had booked a under construction property on 08-12-20.
Thereafter, I had put my existing house on sale, which eventually got concluded on 15-Jun-22, i e after a gap of 18 months.
Further, as per builder we would get possession of under construction Flat by Dec-24. Would like to understand the tax implications on the above mentioned transaction, considering that entire funds are utilised for purchasing the under-construction flat.
The investment in under construction property is considered as construction of property and the date of completion of construction is relevant to ascertain the time period for exemption under section 54.
Since the construction of property will be completed well within 3 years of sale of property and in case, you had invested the capital gain amount in under construction property, you will be eligible for exemption under section 54
I had booked a under construction property on 15 March 21. Thereafter, I had put my existing house on sale, which eventually got concluded on 20 march 2023, i e after a gap of 24 months. Further, as per builder we would get possession of under construction Flat by Dec-23. Would like to understand the tax implications on the above mentioned transaction, considering that entire funds are utilised for purchasing the under-construction flat. Also, what date should i put u/s 54 to claim the benefit
Sir /Madam,
I sold my old property on 08/02/2023
to save long term capital i invested new house and entered into aggreement on 15 /05/2023
When I try to file ITR 2
I filled ITR 2 schedule for sale of property and Sec 54 to get the execution for long term capital gain
when I try to next schedule fill D form I am not able to put New house booking date (15/05/2023)in portal it is allowing only upto March 2023 .
Query ;
1.Why system not allowing to enter New house( under construction possession expected in Dec 2024) agreement date beyond March 2023 and to complete the D form
2.Does it mean I am not eligible for Tax exemption under section 54 for long term capital gain in 2023 -2024 Tax filing .
3.is it legally ok If I don’t show long term capital gain in 2023-24 ?
kindly advices
You are very much eligible for deduction under section 54.
Make sure that you have also entered the correct details of buyers in the schedule.
It is not legally correct – not to report Capital Gain in relevant Financial Year
Hi Udhayakumar, Your case is similar to me and now i cant decide what to do. Can you please help me out from here. thanks
Reference reply on the said query :
It is fact that system is not allowing to enter the purchase beyond 31st March 2023 . Since there is a time to invest amount before filing of return i.e. 31st July 2023, report the Capital Gain transaction in FY 2023-24.
Please ignore the earlier response. Inconvenience is highly regretted.
Thanks Ma’am, For your kind advice.
Our ancestral property which is a rural agricultural land was sold and proceeds were distributed between 59 odd members Total cost was 4-50 crores I got 3 lakh Buyers deducted TDS at 1% and showed it under sec 194AI erroneously How do I show my exempt income in ITR 2 now?
My father built a house in a subdivisional town of west bengal about year 1950-1952 at a total cost of Rs 7000.00 after buying a plot for Rs 1000. He died in the in the year 1955 without leaving any will or gift. Local BLRO issued Parcha in the name of 3 brothers and tax paid every year. In last 10 years the property sold in 2 partsand all 3 got equal share. Now remaining part to be sold in 3 equal part. How capital gain to be ascertained for me a Sr citizen no Taxable Income but filing returns every year.? Thge house was improved on several occassion by raising a floor, adding a Hall stairs etc and cost is not recorded. Kindly advice.
The Capital Gain to be ascertained as follows:-
(a) Obtain the Fair Market Price/ Circle Rate/ Stamp Duty value of the property as on 01.04.2001 ( You can approach Government valuer or the circle rate in that area may be available on West Bengal municipality ( where the property is located) website.
(b) Calculate indexed cost of acquisition = Fair Market Price/ Circle Rate/ Stamp Duty value *348/100.
(c) Capital Gain for you = 1/3rd of the sale consideration – 1/3rd of the indexed cost of acquisition.
Note : Indexed cost of improvement is admissible to be deducted from sale amount, but the cost of improvement is not recorded in your case, so Assessing officer may reject the cost of improvement in the absence of documentary proof
Ma’am
how tax can be saved under Redevelopment of the society building in case project got delayed and handover of flats is not possible under the permissible 3 years period from the handover date of society building
sold a ancestor property in March 2023.of fifty years old.
valuation of property calculation which date will be considered 2001
but circle rate of 2001 is not available in concerned registry office.
on what basis valuer will give valuation certificate.
pl clarify.
You may contact government approved valuer for exact circle rate as on 01.04.2001.
It seems, there was no notification published in 2001 it was published in the year 1999 and 2002.
If it is not available, you can take value of 1999 as Circle Rate for Indexation calculation.
Disclaimer: The above reply is to the best of my limited knowledge . Please take professional’s advice before taking any decision.
I bought an undeveloped plot for Rs.7448/_ in October 1992. Due to transfer, I left that city in 2000 and now settled in another city. Till today, the housing society has not developed the layout due to various reasons. Recently one person contacted me and said he was interested in buying the plot. Therefore I sold the property for Rs.9,31,000/_ and executed sale deed in March 2023. I am a pensioner. My income consist of pension (salary) and interest dividend etc (income from other sources) only. My question is whether I have to show this income as capital gain and which ITR form should be used for the AY 2023-24.
Capital gain of Rs 931000/- minus indexed cost of plot as on 01.04.2001 need to report in ITR 2.
You can save the capital gain amount either by investing the amount in specified Bonds within 6 month( by Sept 2023) or purchase of another RESIDENTIAL house property within 2 years ( Feb 2025) subject to the condition that you should not be having more than one residential property on March 2023( date of transfer of property)
my son purchased flat in 2014 and then shifted abroad in 2016 and became NRI. in 2022 he sold the flat in loss (No Capital Gains), as on date he is N R I. and as he does not have income in India from any source hence he has not filed any ‘Returns’ till date. is it compulsory for him to file this year? can he give his entire money to me, if so any documents to be signed? please guide. thanks.
Assessee sells a site on 1 St June 2021 and books two flats on 15th June 2021, the agreement is made on 15-09-2021, but the possession of the flats is now scheduled in Jan 2024.
Can the assessee get Capital gains exemption for the purchase of the two flats in such a case?
No. Since the assessee sold SITE (other than residential house property) the Capital gain Exemption is restricted to purchase of one flat (residential house property) only- Sec 54F
The exemption under Sec 54 for purchase of two flats is available up to Rs 2 crores (once in a life time) on sale of residential flat.
I entered into a sale agreement ( not registery), with Anoo for Rs. 1.25 crs., of my house on 21/03/2022.
Anoop paid Rs.90 lacs advance in 4 installments which completed on 28/11/2022 and agreed to pay balance Rs.35 lac at the time of registery after three years from the date last date of advance i.e.28/11/2022.
I purchased a flat for Rs.90 lacs on 16/04/2023 under purchase agreement ( not registery since registery of all flats will be done all togather later on) and will purchase another flat after receiving Rs.35 lacs.
Quary : 1) shall I get tax exemption for both flats in different years;
2) is registery charges and interior work includes in sale value.
You will not get exemption for both the flats. Though an individual can claim capital exemption against purchase of two residential houses but the purchase should be within 2 years of transfer(sell) of property.
It is debatable issue and there is contradictory judgment on it- whether date of transfer will be the date of sale agreement or it is the date of registration of sale deed.
Either way, time limit of purchase within one year before or two years after is not complied for both.
I my view, you are eligible to claim exemption for purchase of flat purchased on 16.04.2023 within two years from 21.03.2022, but not the second one, to be purchased on 28.11.2025.
Registry charges will be reduced from sale consideration but not the interior work.
Madam, your opinion is in conflict with the judgement
The Commissioner Of Income Tax vs Mrs Shakuntala Devi on 28 September, 2016
– in order to claim exemption u/s 54, MOU is sufficient to establish proof of purchase. Furthermore it’s not necessary to have the house/flat physically handedover or sale deed registered within the stipulated 2 years of sale. its sufficient to have reinvested the LTCG in the span of 2 years.
There are number of conflicting judgments , not only on this issue but so many other different- different matters.
Disclaimer : The response of queries are not my opinion. It is just a sharing of my limited bookish knowledge.
we purchased a housing plot for construction in 2023 jan in the name of myself and husband jointly. Iam planning to sell a property in my name , the registration of agreement of which will be in August 2023. will I be able to cover the whole cost of the property that I purchased in jan for tax exemption? also am going to purchase another land worth the difference in sale amnt shortly . will I be able to combine these investments together for tax exemption, if every legal sorts are finished within two years from.now.please reply.
(a) To my understanding the query is: – Sale of property (other than residential house property) held in joint name. Sale deed will be registered in Aug 2023.
(b) Capital Gain from sale of HOUSING PLOT will not be available on purchase of LAND.
(c) However, if you purchase another RESIDENTIAL HOUSE PROPERTY within one year before the date of sale or within 2 years after the date of sale (Aug 2023), you can claim proportionate exemption. The cost of new residential property for this is capped up to Rs 10 crores (w.e.f 01 April 2023)
(d) Example: – Proportionate Expenses: – Plot sold for Rs 50 Lakh and the capital Gain on sale of plot is 10 Lakh. If you invest 40 Lakh, the proportionate amount of 8 Lakhs (10 L * 40 L / 50 L) will be exempted
Hi Ma’am. Thanks for the article. I have a small query. My father brought a property in 2014 for 6.5 Lakhs( Government registered value) and we are trying to sell the property this year for 34.5 Lakhs. He wants to transfer the capital gain to me. I have followed the queries.
1)should the capital gain again be used by me to buy only property or can it be used for my purpose?
2)Can the capital gain be transferred as a gift deed to me by registering the gift deed with sub- registrar’s office by paying stamp duty and registration charges?
In both scenarios how would be the tax calcul? ted.
(a) Instead of selling the property & transfer the Capital Gain, your father can gift you the property. It will not be taxable unless you will sell the said property.
(b) Whenever you will sell the property, the capital gain exemption will be available to you on purchase of another property.
(c ) If your father will sell the property now, the capital gain on sale of property will be taxed in the hand of your father and the exemption is available only on purchase of another house property within 2 years of transfer of property.
(d) The capital ASSET can be transfer, not the Capital Gain.
Assessee sold Residential property and the capital gains was invested before the due date of filing the ROI by an agreement to purchasing a site for the construction of residential house.TDS @1% also made.The agreement could not be registered due to a dispute and the construction could not be made.Now the Assessee wants to invest in another property.If he did so, claim the exemption will continue or not.If the Construction could not be completed with in 3 years what are the consequenses.
Exemption will continue provided the construction will complete within three year of transfer of property.
If not completed , the Capital tax will be levied on expiry of three year of transfer.
father sells a property and intends to invest it in a house to avail deduction u/s 54 / 54F.. but he dies. can his legal heir do the investment to avail the dedution?
Yes , It was held by case of [Ramanathan (CV) v CIT (1980) 155 ITR 191 (Mad)] that In case
of assessee’s death during the stipulated period, benefit of exemption under
section 54(1) is available to legal representative if the required conditions are
satisfied by the legal representative.