Purchased new flat by Feb 2016 for 80 lakh. Sold old house by Nov 2016 for 50 lakh which we bought for 20 lakh in the year of 2004. We see the terms 'Constructed' / 'Purchased' in income tax act Section 54 and different rules for the same (-1 & +2 for one and +3 for another one). So, we are confused whether our long term capital gain will come under exemption or not, as our purchase of new flat happened before (within an year) the sale of our old house.
Hi,
You have purchased a new House within one year before the sale of Old House which was held for more than 36 Months. Also, the cost of new house is more than the Capital Gain arising from the sale of old house.
You satisfy all the conditions laid u/s 54. Hence, you can claim complete exemption from Long Term Capital Gain arising from the sale of old house.
Thank you for the response! Can you please explain about the 2 different rules mentioned in section 54 i.e., To claim the exemption the taxpayer will have to invest the capital gains 1. either for the purchase of another residential house property (old or new) within a period of one year before or two years after the date of transfer or 2. in the construction of another residential house property within a period of three years after the date of transfer. Is the first rule applicable 'for purchase of a new apartment' or 'for buying a land & constructing house in it'? Do we have any difference between the above two? If not, then what is the need for 2 different clauses mentioned in the section. Thank you!
Hi,
To claim the exemption, one must invest the proceeds derived from the sale of the house property into another residential house
either within two years from the date of the sale or
one year prior to sale, or
one must invest in the construction of a new house within three years of the sale.
SO you have invested in the new house within one year prior to the sale you are eligible for the long term capital gain.
Just make sure while calculating capital gain you have calculated as below:
Indexed Cost of Acquisition = (Actual cost of purchase) * (CII Of Year of Sale)/(CII of Year of Purchase).
Indexed Cost of Improvement = (Actual cost of improvement) * (CII Of Year of Sale)/(CII of Year of cost of improvment).
Capital Gain = (Sale Price MINUS Indexed Cost of Acquisition MINUS Indexed Cost of Improvement).
Capital Gains Tax = 20% of Capital Gain
Hiii
as per income tax for exemption from capital gain tax if
1.Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or
2. should construct a residential house within a period of three years from the date of transfer of the old house
Deduction Allowed u/s 54
Hi,
First rule is applicable only in the case of Purchase of a Residential House.
Second rule is applicable for purchasing land and construction of a house thereon.
Hope this clarifies your doubt. Feel free to contact for any clarifications or doubts
Yes ur purchase of property comes under exemption as it was purchased within one year before of the sale as per income tax act
Dear Sir,
Purchase of a residential house before one year of sale of old house is eligible for exemption under section 54.
Hence, you are eligible to get exemtpion.
Please feel free to revert in case of any doubts
Thanks and Regards
Abhishek Dugar
CA CS B.Com
Hello Sir,
Based on your query, it appears that you have purchased the property before selling off your property.
In such a case you are illegible for a deduction if the gain was a Long Term Capital Gain.
P.S: The property which you have purchased should be a fully constructed property and not a under construction property.
Trust this clarifies your query.
Feel free to call / get back in case of further clarifications.
Thanking You.
Regards,
Rohit R Sharma
BCOM, ACA, LLB-GEN, CERT. FAFP
