Selling of land and constructing a residential house

Net consideration from sale of any capital asset which is invested in construction or purchase of residential property is exempt from implication of capital gain to the extent of amount invested u/s 54F. In your case the amount of net gain received from sale of Land 1 will be exempted from capital gain tax if the same is invested in the construction of a residential property.

Gifting of a capital asset to brother doesn't attract capital gain implication. You can just execute a gift deed and get the relief.

No need to purchase another land, the net consideration from sale of one land can be invested in the construction of residential property on another owned land. The exemption will be allowed to the extent of the cost of construction excluding the cost of land.

In response to Q1 :

In my view and as per section 54F of the Income Tax Act,1961 the client is eligible for exemption.

As per the Section the Assessee shall have two residential Properties at any point of time. Thus this condition is satisfied since the client has invested the capital gains in construction of the land already owned by him.

In response to Q2.

In the present case there is no need to purchase new land and construct, he will be eligible for exemption if he constructs residential building in the land already owned by him.

Also exemption is valid if he gift the property to his brother and the brother shall not sell the property within 3 years to avail this exemption.

As long as the cost of construction of new residential house is more than the net consideration received on sale of a non-residential house, capital gains is exempt u/s 54F, subject to fulfillment of other conditions specified therein. If the assessee constructs his house in his existing land, still exemption u/s 54F will be allowed.

If the new residential house, on which exemption u/s 54F is availed, is transferred, by way of gift or otherwise, within a period of 3 years from the date of its acquisition, the exemption will be lost u/s 54F(3) .

Exemption will be available if he construct on another land which is already in his name. No need to buy new land for construction of Res.House.

Yes. he can claim the exemption u/s. 54F. The following conditions has to be satisfied :

1) The construction has to be completed within 3 years of the sale of property

2) Till such time the construction is completed, the sale consideration has to be invested in Capital Gains account scheme and withdrawls from the capital gain account should be used only for the purpose of construction of house property only.

The same shall not be transferred/sold for a period of 3 years. In the given case, if it is gifted to brother, the same will be taxable as capital gain in the year of such transfer by way of gift.

Dear Sir,

1) Yes he is eligible for exemption u/s 54 considering that the residential house property shall be constructed in a span of 3 years from the date of sale and till then the amount has been kept in Capital Gain Scheme Account.

2) At-least the Sale proceeds of Land 1 should be utilized for construction of property on Land 2. The amount left underutilized shall be liable to Tax.

3) The exemption will stand valid even though the residential property is gifted to his brother.

Regards,

CA Rohit R Sharma

www.raskassociates.com

Yes you can get benefit of the section 54F. And after constructing the house if you transfer to your brother then you are breaching the conditions. you are transferring the house so it is taxable in your hand.