This query is on account of Capital Gains for a person named ‘A’ and relates to AY 2018-19
‘A’ owned a 2nd floor apartment +terrace and his brother owned GF flat in a 3 storey building which is a long term capital Asset. The 1st Floor flat belongs to another person (let’s call him 3P) who is not a relative.
The Brother was interested in selling his GF flat, ‘A’ agrees to buy the flat from his brother & alongside enters into an understanding with a Builder along with 3P to reconstruct the entire building.
From the advance given by the builder and selling his & his wife’s jewellery pays off his brother.
Immediately thereafter, ‘A’ who now owns 2 flats & 3P enters into an agreement with the builder to reconstruct the property and hand over the possession to him.
According to the Agreement, Builder pays cash + reconstruct GF flat for ‘A’s living & keeps II floor flat + terrace. So technically he has bought 2nd Floor flat from ‘A’. The agreement says the property will be developed in 15 months from the date of agreement + another 3 months as grace period.
Following Section 45(5A):
The queries are following:
1. Will the Capital Gain on jewellery sold qualify for deduction under section 54F for GF purchased from his brother, which was handed over to the builder immediately thereafter..
2. Will there be a short term capital gain on GF house purchased from his brother if the Completion Certificate is obtained in 18 months i.e. less than 24 months.
3. Since the II floor house is technically sold to the builder, will the capital gains be calculated for current financial year or will be done in the year CC is obtained?
Asked 2 months ago in Capital Gains Tax from New Delhi, Delhi
1) Sale of jewellery would qualify for exemption u/s 54F for GF purchased from your brother.
2) I don't think there should be a STCG as you became the owner of GF before handing it over to the builder of which you claimed exemption u/s 54F and after reconstruction again it will be your own property. You have not transferred it to some third party or reconstructed any third house property for which exemption would be taken off from you.
3) You need to pay tax on the share received from the builder i.e. cash and SDV of the G.F. on the date when CC will be issued. Cash and SDV will be your sale consideration and less your share of COA to calculate the CG.
Take the second opinion before taking any decision on the above matter.
1. Yes, exemption can be claimed.
2 n 3. Capital gains shall be computed in the year of completion. Consideration shall be the stamp duty value of land or building or both as on date of completion as increased by the monetary consideration. Total capital gains shall have to be bifurcated into long term and short term as GF was a short term asset and II floor being long term.
# Your brother was liable to pay capital gain taxes.
# The builder is liable to deduct TDS @ 10% under section 194IC for any payments made to you.
1. yes it will qualify
3) You need to pay tax in the year the completion is completed.
1. No, since you have handed over the flat to builder immediately after taking the possession, it will be considered as transfer and you can't transfer the house upto 3 years if you want to avail exemption.
2. Yes, stcg will be applicable to you on giving the flat to builder if cc is obtained in less than 24 months.
3. You will have to pay capital gain tax at the time of receving completion certificate.
1.Yes you can claim exemption
2.yes short term capital gain will attract as holding period was less than 24 months.
3.Capital gain will be calculated in year of CC receipt.
Section 45(5A) says on the date of getting CC, the stamp duty value of the flat + any cash received for the arrangement will be treated as full value of consideration. From this, cost of purchase on the date of the agreement or the stamp duty whichever is more will be deducted to arrive at the capital gain. Am I correct?
Also Transfer of property never happened. Every thing like getting permissions for plan sanctions etc. is being done through GPA. In this case, II floor flat was a LT capital Asset, whereas GF flat is just been bought. So, I will calculate LTCG for II floor flat ( cash paid by the builder is stamp duty value of II floor) and STCG for GF flat (time being less than 24 months).
Asked 2 months ago
According to me entire consideration will be considered as share of GF only and only GF cost should be deducted from the consideration. There should be only short term capital gain in this case.
Please also take second opinion for the above matter.
Cost of acquisition of the II floor shall be the actual COA. COA for GF shall also be the actual cost I e. amount paid to your brother. COA for LTCG shall be indexed.
The exemption in point 1 for sale of jewellery would be questionable. Transfer of rights to the builder under JDA shall amount to transfer of capital asset by way of relinquishment of rights. Since the property in which reinvestment has been done should not be transferred within 3 years, the exemption may be withdrawn.