Background: my parents residential property (built in 1970s) is split equally into 4 family members (assume FMV in 2001 = Rs 9 lakhs ). We decided to pursue a JDA in Dec 2020 to build 10 flats with a builder in which the builder keeps 4 flats and the 4 family members get 6 flats (each owner gets 1.5 flats). The Builder provides a cheque of Rs 50 lakhs as well. Project completion certificate is expected to be issued in Dec 2022. Lets assume, FMV in Dec 2022 of each new flat is 1 Crore. question 1: On JDA projects, under Section 54 exemptions for LTCG, can each owner claim exemption on more than 1 flat? question 2: what will the LTCG for each owner?
Capital gain at the time of completion certificate would be calculated by deducting total land cost from the stamp duty value/market value plus the cash received for flat by land owner.
In your case Sale Consideration = FMV 1 crore+50 lakhs= 1.5 crores
Less: Cost of Land=(9*COI for 2022-23/ 100)
(assuming 9 lakhs was the cost for each owner)
Exemption can be claimed for 2 flats if the capital gain does not exceed 2 crores.
Hi
1. With effect from Assessment Year 2020-2 1, the Finance Act, 2019 has amended Section 54 to extend the benefit of exemption in respect of investment made in two residential house properties. The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of longterm capital gains does not exceed Rs. 2 crores. If assessee exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year.
So yes you claim exemption under section 54.
2. Long term will be stamp duty value less indexed cost of acquisition
Is Builder provides a cheque of Rs 50 lakhs
Each one of you ?.
Dear Sir,
Hope you are doing well !!
Taxation under the JDA Joint Development Agreement is different as compared to normal capital gain. Here Sec. 45(5A) comes to the scenario. As per Sec. 45(5A), Capital Gain arising under JDA are taxable in the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. And the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by the consideration received in cash, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset
Then further Capital Gain liability would arise on the sale of the floors in the year of the actual sale, Sale Consideration would be actual sale proceeds received and the cost of acquisition would be the Stamp Duty Value considered at the time of completion certificate.
For calculation of Cost of Acquisition, you need to get the valuation report from a certified engineer for your share in the property as on 1st April 2001, it would be your Cost of Acquisition. The costs would be indexed using the cost inflation index, making it indexed cost of acquisition.
1 & 2 - Capital gain will be calculated as below:
Sale consideration -Indexed COA = (Rs 1.5 cr- Rs .9 cr*COI of 2022-23/100 )
With effect from Assessment Year 2020-21, the Finance Act, 2019 has amended Section 54 to extend the benefit of exemption in respect of investment made in two residential house properties. The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long-term capital gains does not exceed Rs. 2 crores. If assessee exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year.
We have handled such cases before.
We may assist you in entire procedure.
It is advisable to take a phone consultation for detailed discussion.
Hello,
1. Yes, exemption u/s. 54 can be claimed for investment in two house properties if the LTCG does not exceed Rs. 2 crores.
2. Capital Gain arising under JDA is taxable in the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. And the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by the consideration received in cash, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.
Therefore, LTCG for each owner would be the Stamp duty value of his share of flats + Share in cash consideration of Rs. 50 Lakhs - Indexed Cost of Acquisition of his share.
I hope that this answer satisfies your requirements.
Regards,
CA Hunny Badlani
Hi,
1. Yes, you can claim exemption on two house property since value of capital gain in case of each co-owner ks less than 2 crores.
2. Capital gain would be chargeable at the time of completion of the project. Capital gain would be sales consideration (i.e. FMV of 1 crore + 50 lacs received from builder by each owner) less indexed cost of acquisition. Indexed cost of acquisition would be determined basis FMV/ stamp duty value of the flat as on 1.4.2001 multiplied by the indexation factor.
We can help you in getting the FMV of the property as on 1.4.2001
Yes as per the new rule one assessee can claim exemption u/s 54 for sale of one house by investing in more than 1 house if the capital gain amount is below 2 crore.
We don't have indexation value for 2022 now so cannot tell the amount of capital gain.
Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.
Thank you
Thanks for the responses. If the LTCG is greater than Rs.3 Crores per owner, What exemptions can be claimed by each owner under Sec 54 or 54EC or any other section? Also, this Residential Property has been renovated a few times between [deleted]. Can the cost of renovation/improvement be included in the calculation of Indexed Cost of Acquisition
Then, exemption under section 54 would be restricted to 1 house property i.e. you can invest in a single residential house property to claim capital gain exemption.
Exemption under section 54 EC can also be claimed for investment in specified bonds upto INR 50 lacs.
Dear Sir,
-With effect from Assessment Year 2020-21, the Finance Act, 2019 has amended Section 54 to extend the benefit of exemption in respect of investment made in two residential house properties. The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long-term capital gains does not exceed Rs. 2 crores. If assessee exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year.
- So, you can invest only in single residential property to claim 54 exemption.
-Alternatively and/or additionally, you can invest the capital gains of up to Rs 50 lakhs in bonds of NHAI or REC, within six months of its accrual and get the exemption u/s 54EC.
Such bonds shall be redeemable after 5 years. Only interest received on such bonds shall be taxable. There would be no taxes on redemption after 5 years.
-Yes,you can take the benefit of indexations on construction cost/renovation cost provided you have sufficient proofs to justify the same. It would be treated as cost of improvement.
Hi
Under Section 54 the IncomeTax Act, an individual or HUF selling a residential property can avail tax exemptions from Capital Gains if the capital gains are invested in purchase or construction of residential property. Taxpayers such as partnership firms, LLP’s, companies or any other association or body cannot claim tax exemption under section 54.
The conditions that need to be satisfied to avail the benefit of the said section are as follows:
The above conditions are cumulative. Hence, even if one condition is not fulfilled, then the seller cannot avail the benefit of the exemption under Section 54.
With effect from Assessment Year 2020-21 corresponding to FY 2019-20, a capital gain exemption is available for purchase of two residential houses in India. However, the exemption is subject to the capital gain not exceeding Rs 2 crore. Also, the exemption is available only once in the lifetime of the seller.
Yes each owner can claim the exemption.
Section 54EC
Section 54EC of the Income Tax Act, 1961 lays down the provision that capital gains are exempt from tax, if the long-term capital gains are invested in specified investment instruments within a pre-defined time period. Features of Section 54EC have been summarised as follows:
2. Yes it will be consider as cost of improvement.
You can take benefit indexation on that also.
Calculation of long term capital gains is sales consideration less cost of transfer less indexed cost of acquisition less indexed cost of improvement.
Currently these are the only two options available for claiming exemption from capital gain.
You can claim cost of renovation only if you have proper bills for same to justify the cost.
Exemption u/s. 54 can be claimed for investment in one house property.
Exemption u/s. 54EC can be claimed up to Rs. 50 Lakhs for investment in specified NHAI/REC Bonds.
If LTCG is greater than 3 crores, exemption under Sec 54 can be claimed on buying another house property for value upto 3 crores. Exemption under 54EC is available only upto 50 lakhs.
Cost of renovation can be included in Indexed Cost of Acquisition and indexation of the year in which renovation was done will apply.