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Reduce 3 Year limit under section 54, 54B, 54D and 54F to 2 Years

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

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
Categories: Income Tax

View Comments (9)

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

  • 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.

  • we bought a piece of land for in the year 2000 under a registered co-operative housing Society.
    Co-op society has started built a building comprises 8 flat in the year 2014.
    Co-op Housing Society has allotted me a flat in the year 2014.
    Flat has been completed two months earlier.
    Now I want to sell my share( Flat) and to buy another flat in my convenience utilising whole amount.
    Am I eligible to receive exemption of LTCGT. Kindly intimate.
    S K GHOSH

  • Hi my name is Mayank ,

    I have one flat in Lucknow which i had purchased in 2010 in Joint name with my wife . The EMI is still going on , Loan is only in my name . Now I want to sell my parents house in Gorakhpur ( they are not alive ) . The gorakhpur house is in my and my both sisters name . They both will give NOC so at last it will come in my name . My question is if I want to purchase flat in Bangalore will I be eligible or there will be any capital gain tax . The Bangalore house is more that the sale value of gorakhpur house . Pls suggest.

    • There will not be any tax on capital gain provided, you purchase the new flat within 2 years from the date of sale of your father's flat.

  • 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.
    Very sensible. But has it been done Now?

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