Reinvestment in house property
I am retired 71 ur old pensioner owning a flat since 1982 in Bombay. All 13 buildings of society are redeveloped & I got possession in 2015 after getting OC from Muncipalty. I want to sell it and by two new flats in Hyderabad, in same bldg across corridor, opposite to each other. Can I buy one flat with my name and my daughter and 2nd one with my wife and son or both in my name? Since sale cost = purchase cost of two new flats, am I liable to pay capital gain tax or buy bonds?
Asked 2 months ago in Capital Gains Tax from Hyderabad, Andhra Pradesh
For claiming capital gain exemption, you can invest in one residential house property only.
You can invest in both the properties but capital gain exemption shall be available in respect of one property only.
Firstly, capital gains need to be computed. If investment in one property is more than the capital gain of property sold, entire capital gains shall be exempted.
1) Since it would be a long term capital gain and to save tax on LTCG, you need to invest in one residential house property therefore you will get the benefit of exemption in respect to one house property only.
2) Purchase the new property (to avail exemption u/s 54) either completely in your name or in joint name of yours and wife. No exemption would be available for property purchased in the name of married daughter.
Let me first clarify you that in order to claim releif from capital gain taxes, you need to invest only capital gain amount in an another residential house property or in bonds. You don't need to invest the entire sales consideration. Because you are eligible for exemption u/s 54.
Further, you can invest only in one house Property. You can't invest in multiple properties. If you can't invest entire capital gain in one property, you can invest in bonds u/s 54EC as well.
Please note that there are certain conditions and timelines to invest in these assets. Please let us know if you need further explanation.
U/s 54 if capital gain arise due to sell of residential house then such capital gain extent to cost of new property is exempted in some High court decision property in name of spouse in entitled for exemption. but as per law you can one residential unit for exemption if capital gain is less than cost of one flat then it will be exempted other wise excess amt will be taxed @20% or you have to invest in Capital gain bond for 5 year lock in period you may contact me @ [deleted]
Hope you are doing well!
You can claim exemption u/s 54 only for one residential property. You just need to invest capital gain amount only, not full sales consideration.
If you have remaining amount from Capital gain amout after buying one residential property, you can further invest in 54EC bonds for tax benefit.
Thanks & Regards,
Capital Gains exemption U/s.54F can be claimed only in respect of investment in one residential property. Exemption in respect of investment in more than one residential property can be claimed only if both the properties/flats are situated adjacent to each other and can be proved to be used a singe residential property by having a common passage.
So, in your case as you are purchasing the flats situated opposite to each other, exemption can be claimed only in respect of one house. To escape Capital Gains, remaining money (Sale value - value of one flat) can be invested in bonds for exemption under Sec.54EC.
In relation to your query the answer is that you are entitled to claim deduction for the cost of one flat and by inflation index you need to compute the capital gain.
Founder - Vincent Advisors
To claim the exemption,invest in only one residential house is allowed. Further only capital gain amount is to be invested not full sales consideration. You can buy bonds under sec 54 EC also in order to claim tax exemption.
Q. Reinvestment in house property
Ans. According the section 54 of income tax act
you have to invest only the capital gain amount in new flats or in the bond otherwise your will be liable to tax on capital gain amount at rate of 20 %
you have to invest in new flat or in capital gain bond before the 6 month of the sale of old flat or before the filling of your income tax return which ever is earlier
you have to purchase in your name (either flat/ or bond) otherwise deduction u/s 54 is not available
capital gain is calculated = sales price of old flats - indexed cost of the old flat ( you have purchased flat in the year 1982 so your have to new valuation report from the register valuer as on 1.4.2001 is new fare market value will be your cost of old flat )
new flat purchase is cover under section 54
bond purchase is cover under section 54EC
if you are not able to purchase flat withing the period of six month then your have to invest amount for the temporary period upto the purchase of new flat in the capital gain saving account with nationalised bank before the end of the period of 6 month form the sale of flat.
To claim the tax exemption u/s 54, you need to reinvest only the capital gains amount in a residential house property or in bonds.
Further, the exemption is available only on investment in one house Property and not on multiple properties. The balance capital gains can be invested in bonds u/s 54EC.
Further it is advisable to buy the property in your name either jointly or as a sole owner.
No, exemption u/s 54 is available only for one residential property.
You can buy 54EC bonds from remaining amount from capital gain amount.
- First thing is
Deduction under section 54 is available for sale of residential house property.
- As there are 13 buildings - all cannot be classified as residential house property,
the deduction is available for one old building against one new building
- The deduction is also avaliable for purchase of one new house property and not for 2 house property.
Best way is to register an HUF and transfer some assets under the name of HUF and buy the 2nd house in the name of the HUF, then the deduction can be claimed for both the houses.