Dear Sir, Can I invest the capital gain (earned from selling of a residential flat solely owned by me) to purchase a new residential flat (of higher cost) jointly with my mother in law to save my capital gain tax? She will pay according to her share in the new flat. What will be the tax implications if the society wherein new residential flat is purchased goes for redevelopment within 6 months , both from the point of view of the earlier saved capital gain tax and any capital gain tax because of redevelopment ? In this regard, it may be noted that redevement will only give a bigger flat after 2- 3 years and not any money in cash
Hello,
Yes, you would be eligible for the exemption even if you invest as sharing with your mother in law in a new house property.
There won't be any tax implications now if the new property goes for re-developmemt since there won't be any change in the ownership of the property. When you sale such property in future, you would be able to claim such redevelopment expenditure as a cost for the property.
I hope this answer satisfies your requirement.
Regards,
CA Hunny Badlani
Yes you can invest the capital gain amount in new house jointly with your mother in law but your share should be equal to the amount you want to claim as exempt under capital gain.
It depends on the contract if the builder asks you to transfer the right in the flat once the construction is complete and which will come most probably after 3 years so you won't have to pay that capital gain but if the ownership is transferred before 3 years then while calculating the capital gain of new house you'll have to reduce amount of earlier capital gain from cost and calculate capital gain but since you will again get big house I don't think you'll ever pay tax.
Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.
Thank you
Dear Sir, i have heard that if the residential property purchased to save capital gain tax is not hold for 3 years, then capital gain calculated for sale/ transfer of such property is always treated as short term...so in such a case, my new big flat after redevelopment will help to save tax? Secondly please confirm it is possible to make a development agreement where ownership rights are transferred at the time of completion of construction? Regards, Vivek
That is different and covered under 54F and I think your case will be covered under section 54 which is different.
As far as normal agreements are concerned the landlord first transfer their rights to builder and then when the builder complete the project then the capital gain is calculated as per 45(5A) but rights are transferred before because without transfer of rights he can't start the work.
- Redevelopment of the property does not mean the sale of the property within 3 years of the transfer. Capital gain exemption is available.
The capital gain earlier exempt would be taxable if the new house property purchased under the exemption is sold within 5 years of capital gain.
Since your new flat will be redeveloped and ownership won't be transferred, you capital exemption won't be taxable for redevelopment.
Dear Sir,
Hope you are doing well !!
The law does not clearly say that the new property must be bought only in the name of the seller and not on anybody else’s name. Hence, there are interpretations that Joint ownership can be acceptable but exemption can be limited to the share of ownership.
Also, you will be able to claim the capital gain exemption.
Yes, it is possible to make a development agreement where ownership rights are transferred at the time of completion of construction.
We may assist you in the same.
Hi
Yes, you may invest in a joint property with your mother in law. You must invest a minimum of your capital gain amount in order to claim exemption under section 54.
Yes, exemption will be provided irrespective of the redevelopment.
Vivek,
Get the property registered in your name (joint ownership) before redevelopment. In case of redevelopment, exemption shall not be reversed.
Don't go for a delayed transfer of ownership agreement.
Many thanks for response to my query I would really appreciate if you can quote the rules which stipulate that redevelopment is not considered as sale and earlier saved capital gain tax will not reversed if the society wherein new flat is purchased goes for redevelopment within 6 months Actually want to be doubly sure before going ahead
It is decided in many case laws.
I'll will share the relevant rules shortly.
Please provide your mail id.
As mentioned above redevelopment would be covered under section 45(5A) and would be considered as sale when you receive occupancy certificate.