With regard to purchase of under construction house, Section 54 says: Assessee should complete construction of purchased (under construction) property within three years of sale of old house. Does this mean the under-construction property cannot be bought before selling of old house? Recently I booked an under construction property by paying a token amount. One week after booking this property I sold my old house. Can I get tax exemption by investing the capital gain in the new house? Or will that be not allowed?
Hi,
Although, income tax act only talks about completion within 3 years. Tax authorities in the past have denied the exemption if the property has been booked before the sale of old flat.
However, there are court rulings in favour of taxpayers that exemption is allowed even if flat is books before the sale of old flat.
Refer below decision
Thanks. In my case the booking of new flat was done only one week before sale of old flat. Actually I booked during the launch phase of the new project. At that time, construction had not commenced. Construction begun much after the sale of old house and in fact is still at excavation stage. Will that ensure that I will get tax exemption, or there is still some possibility of litigation? Also, the date of possession given by the builder on the agreement falls nearly four years later than date of sale of old flat. Will that rule out tax exemption? Or is it still OK so long as the capital gain amount has been spent within three years of sale? Thanks.
Section 54 says that construction of the house should be completed within 3 years from the date of transfer. If someone has purchased land before sale of house and started construction after sale and completed it within 3 years then exemption would be available. Construction should be completed and the ownership should also have been obtained. Basically registered agreement should be there.
The Construction should be completed within 3 years from the date of sale.
If the construction completion date is after 4 years it will be litigated by the department and chances of your winning seems less.
As long as the construction is completed within 3 years of transfer of the other asset, there should be no issue and you would be granted the tax exemptions. If the construction is not completed in 3 tears, then you may not be granted the exemptions.
Regards,
Nikhil.
Also the law is clear - it is not only important that the capital gains amount has been spent but also the conditions of that provisioin is followed. So construction has to be compulsorily completed for you to claim exemption.
Hope that clarifies.
Hi
1. There are different case rulings with regards to purchase of land before sale of the old property and construction thereafter. This could be litigative. The relevant date considered as date of acquisition is date of allotment. So, if the letter of allotment is issued to you by the builder after sale of old property, the purpose is solved.
2. In order to claim the exemption, the construction of the new property should be completed within 3 years of sale of the old property. If the construction is not completed within 3 years, the matter again becomes litigative.
As per the provisions,construction should be completed with in 3 years of sale of old property,to claim the exemption.
But there are cases where delay is due to builder and situation was not under control of buyer then,exemption can be granted to him.
As you mentioned that full amount was invested within 3 yrs and if you can prove that delay was due to builder activity then you can claim exemption based on past case law decisions.
But if it was conveyed by builder earlier ,that you will get possession on this date then it will be difficult for you to prove him guilty.
