I have a detailed question about real estate capital gains tax.
1. My spouse owns residential land in Chennai. If she sells the property and invests the entire proceeds in a new apartment, will she be exempt from LTCG? She already owns a residential apartment in Chennai.
2. If she transfers the first residential property to our daughter by way of settlement without consideration, then sells the land and buys a new apartment, can she avoid the capital gains tax since on the date of purchase of the new apartment there will be no residential property in his name. Our daughter already owns an apartment.
3. According to Section 54F, the assessee must not own more than one residential property at the time of investing the proceeds of the long-term asset in order to claim the LTCG tax exemption. Does this mean that she can already own one residential property and still qualify for the LTCG tax exemption when buying the second property by investing the proceeds from the sale of the land?
4. All of us, ie me, my wife and my daughter, individually own shares in listed companies. If we sell the shares (gains would be long term) and invest the proceeds jointly to buy land, will there be an LTCG tax exemption? Alternatively, if we invest the proceeds to buy a joint apartment, will there be an LTCG tax exemption? Each of us already owns residential apartments individually.
In accordance with the provisions of Section 54F of the Act, long-term capital gains resulting from the sale of fixed assets (original asset) other than residential immovable property by an individual or an undivided Hindu family (HUF), can be claimed as exempt if the below conditions are met:
• The proceeds from the sale of the above asset are to be invested in the purchase of a residential property (new asset) in India;
• The taxpayer must not own more than one dwelling house on the date of the transfer of the asset (other than the new asset)
• Reinvestment period
• In case of purchase – this purchase must be made within the year preceding or within 2 years following the date of transfer of the original asset;
• If built – Construction must be completed within 3 years from the date of transfer of the original asset.
Refusal of exemption:
• If any other residential home property (other than a new asset) is purchased within 2 years of the asset transfer date; Where
• built within 3 years respectively from the date of transfer of the asset.
• If the new asset is transferred within 3 years from the date of purchase/construction
The capital gain so claimed as exempt would be subject to tax in the year of investment/transfer
Eligible exemption amount:
The amount of the deduction under Section 54F of the Act depends on the amount invested in the residential property.
• If all of the net sale consideration (sale consideration minus expenses directly attributable to the sale such as brokerage) is invested in a home, the entire amount may be claimed as an exemption under section 54F.
• If part of the amount is invested, the exemption would be available proportionally, i.e. Capital gains X Amount invested / Consideration of net sales
If such an investment is not made by the tax return filing date, the net sale consideration must be deposited under the Capital Gain Account Scheme (CGAS) with a nationalized bank.
Answers to specific questions:
1. Yes, your spouse could qualify for an exemption under Section 54F because he only owns one residential property at the time of the parcel transfer. I have assumed that all other conditions specified above are met.
2. She would be eligible to claim the exemption even if she does not transfer ownership to your daughter since the terms allow for residential property to be held at the time of the sale of the original property.
3. Yes, she would be eligible to claim the LTCG tax exemption when purchasing the second property/new asset by investing the proceeds from the sale of the plot if she only owns one residential property at the time of transfer of parcel and that other conditions are met.
4. Purchase of land: If the proceeds from the sale of shares are invested in the purchase of land, you may not be able to claim the exemption under Section 54F. However, if a residential house is built on said land within 3 years of the date of transfer of the shares, then it will qualify for an exemption under Section 54F.
Investment in residential property: You and your daughter can claim the u/s 54F exemption from reinvesting proceeds from the sale of shares in new residential property if you only own one residential property each at the time of the transfer of shares. shares subject to satisfaction of other conditions specified pursuant to Section 54F of the Act.
Your spouse can also explore applying for the u/s 54F exemption, provided they have not already invested in a new residential home from the sale of land (as mentioned in point 1 below). above) before the date of sale of the shares.
The exemption would be available in proportion to the investment you, your daughter and your spouse have made in the new asset.
The author is a practicing Chartered Accountant
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June 18, 2022