Tax on Long Term Capital Gain (LTCG) on sale of any residential house property can be saved (U/s 54 of the Income Tax Act-1961) if the LTCG is invested within a prescribed time for purchase/ construction of a house property. The exemption u/s 54 would be available even if the taxpayer already owns another residential house property (i.e., exemption would be admissible even if second house property is purchased). Another option to save LTCG tax could be by investing the amount of LTCG within a period of 6 months from the date of transfer in the specified bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI).
Time limit to Purchase the Property: Exemption u/s 54 is available
For Purchase: Within One year before or two years after the date of transfer; or
For construction: Within a period of three years from the date of transfer.
If you are planning to purchase a flat, you have to complete the transaction of purchase before 21.09.2015. Mere investment in plot is not sufficient for claiming an exemption u/s 54. However, if the house is constructed thereon then the cost of the plot would also be eligible for exemption u/s 54 along with construction cost.
Scheme of Deposits:
Even though u/s 54, taxpayer is allowed 2 years for purchase and 3 years for construction of the house property, the capital gain tax on such transfer is taxable in the previous year in which transfer took place. The return of income of that previous year has to be filed before the specified date i.e., due date. Hence, the tax payer has to take a decision for purchase/ construction of the house property before the date of furnishing of the return otherwise the capital gain would be taxable. To cope up with such situation, Income Tax Act has specified an alternative in the form of Deposit under the Capital Gain Deposit Accounts Scheme-1988 (CGDAS) for earmarking the amount for purchase/construction within specified time limit. The amount of LTCG which is not utilized by the taxpayer for purchase or constructions of the new house till due date has to be deposited under the CGDAS before the DUE DATE of furnishing the return of income. After deposits, the amount already utilized by the taxpayer for purchase/ constructions of the new house till due date, along with unutilized LTCG so deposited, shall be eligible for exemption u/s 54 in the year in which LTCG has arisen. Later on, whenever taxpayer purchase/ constructs the house property within a specified time slot, he can make payment from the CGDAS.
Exemption u/s 54 is available if the assessee invests the amount of LTCG for purchase of “a” residential house property. Interpretation of the word “a” is a matter of controversy. To be on a safer side, you are advised to invest the amount of LTCG in one house property only. You may further note that, for claiming an exemption u/s 54, you are required to invest the amount of LTCG only (not entire sale consideration of Rs. 29.99 Lacs).
Registry Charges/Stamp Duty/Brokerage etc can be added to the cost of new flat for arriving at the amount of exemption u/s 54.
If you are not able to utilize entire LTCG for new house property, you can invest balance LTCG in the specified bonds issued by NHAI/REC. Exemption U/s 54 & U/s 54EC can be claimed simultaneously as well. If you are planning to invest in specified bonds, ensure to make the investment within a period of 6 months i.e., before 21.03.2014.
You can claim an exemption u/s 54 by booking a flat & making the payment in installment to the developer. After considering the amount paid to developer till due date of filing the return of income, ensure to deposit the balance of LTCG in CGDAS. Subsequent installment can be paid to the developer from CGDAS.
You can incorporate the name of your wife also in the sale deed for the name sake. Ensure to make the payment through your account only so that you would be able to prove that your wife don’t have any ownership stake in the property & her name is incorporated in the sale deed for the convenience only.
If you are not sure of investing LTCG for purchase or construction, you can safely & timely think of claiming an exemption u/s 54EC by investing it in the specified bonds issued by NHAI/REC.