Sale of self constructed bungalow

Dear Sir,

First of all please let us know, when you sold the land in 2013, did you take any exemption under section 54F?

Coming to your question, yes you have to take land and flat separately into account. Yes, it will be taxed under capital gain head.

Please feel free to call/ revert in case of any doubts

Thanks and Regards

Abhishek Dugar

CA CS B.com

Hi,

As you have utilised the capital gain amount arises on the sale of the flat.

The government restricts the sale of new residential property for another 3 years. If a person again sells his new residential property, He/she is liable to pay back the exempted capital gains tax. The exemption in the first place would be withdrawn.

The ultimate impact of the restriction is as follows:

• The restriction will be imposed, if after claiming exemption under section 54, the new house is sold before a period of 3 years from the date of its purchase/completion of construction.

• If the new house is sold before a period of 3 years from the date of its purchase/completion of construction, then claimed capital gains exemption would be deducted from the cost of new property. It will increase the capital gain from the new property.

so if you are planning to sell the house then amount of capital gain from the sale of the flat would get reduced from the cost of construction of the bungalow to arrive at capital gain.

and your bungalow will fall under short term capital gain, though land will come under long term capital gain.

so you are required to work out whether it is beneficial to sell it now or not.

See first issue is you have take deduction for bunglow u/s 54 and construction is completed in 2016 assuming that you have got completion certificate in 2016. Your holding period starts from 2016 for bunglow, I.e. Since you have taken deduction you can't sell 3 yrs the bunglow. If you sell you have to pay capital gain tax for flat sold in 2013 and again for new Bunglow sale in 2016.

Hello sir ,

you can claim exemption U/S 54 of income tax act, Now what provision section 54 contains here is a short brief:-

This is the section for availing tax benefit on long term capital gains arising from a residential property. Under this section if a residential house is sold after three years of purchase then one can avail tax exemptions on the gains by investing them in following options –

a) A new residential property either bought within two years or constructed within three years from the date of transfer of existing property. In the case of buying a new property, the exemption is available even if it is bought within one year before the date of transfer.

b) There might be a situation when you would not have decided on a new property but do not want to

lock in the money in the bonds. In such instances, the money has to be deposited in a Capital Gains

Account Scheme.

The entire capital gains will be exempted, if the amount of investment in new property is equal or

greater than the capital gains earned.

One of the larger benefits of Section 54 is that one can hold a number of properties as on the date of

transfer and still claim exemption on the gains.

In your case LTCG will come apporox Rs.1,89,47,729*.

* sale value = 3crore

(-) cost of acquisition = 4450158 (25 lakh * 1125/632)

(after indexation)

(-) cost of Improvement =6602112 ( 50 lakh * 1125/852)

(after indexation)

LTCG = 18947729

Now , As per the provision You have two option either you invest in property or in CGA scheme or in both equal to the capital gain arise i.e (18947729).

If you do not invest in either of the above , you have to pay Flat 20% tax on the capital gain arise.

For any clarification feel free to contact us at ca.skagarwal@gmail.com

Call at: 07503638500

Thanks Regards

CA SK Agarwal

7503638500

Hi,

yes , you are correct that for long term capital gain , period of holding is reduced to 2 years but as i had mentioned as you had availed capital gain exemption while constructing a bungalow, you are required to hold it for 3 years ,if you dont want to reserve that capital gain amount ( which you had claimed on sale of flat).

so there are two things-

1) long term capital gain on sale of bungalow if you hold it till May 2018.

2) Non reversal of capital gain exemption claimed in earlier year if you hold it till May 2019.

If bungalow is attached to the land and if land is the part of the bungalow then you cant treat them separately. though you can calculate capital gain separately depending on period of holding. but it will be treated as One.

if it is possible to sell the part of the land which is separate from the bungalow, then yes you can sold it separately and can avail long term capital gain for that part of land.

Then it that case you will get indexation for land and construction cost no indexation. So from total consideration Indexed cost of land and only construction cost of bunglow will be deducted and deduction u/s 54 will be claimed

Sir, I don't say that costructed building is a short term, I treated it as a cost of improvement and COI will

always indexed and treated as long term, if cost of acquisition is long term.

you can not calculate separate tax for land and building.

Also, there is a section 54EC in which you can claim exemption , here is a short brief of 54EC:-

The asset that has been transferred by the assessee must be a long-term capital asset, and the transfer of

such an asset should result in long-term capital gains or profits.

The transfer of the long-term capital asset in question should have taken place post April 1st 2000

The capital gains or profits received by the assessee from the transfer of the long-term capital asset, either

completely or partially, must be invested in the long-term specified asset

These long-term specified assets are any of the following:

Bonds issued by the National Bank of Agriculture and Rural Development (NABARD), which are redeemable

following the completion of three years.

Bonds issued by the Small Industries Development Bank of India (SIDBI), which are redeemable following the

completion of three years

Bonds issued by the National Highways Authority of India (NHAI), which are redeemable following the completion of three years

Bonds issued by the National Housing Bank, which are redeemable following the completion of three years

Bonds issued by the Rural Electrification Corporation Ltd (REC), which are redeemable following the completion of three years

The investment in the long-term specified asset takes place within a duration of six months following the date of the transfer of the long-term or original asset

As per the provisions outlined in Section 54EC(1), any investment that the assessee has made over the course of any financial year, must not be more than Rs 50 lakhs

The assessee will not be able to claim tax deductions under Section 80C, should any investment of capital gains be made in the bonds mentioned previously.

conclusion:-

you can avail 50lakhs exemption by investing in bond and earn 6-7% interest with no risk , and balance 1.4 crore in property.

under this section your both condition are fulfilled :-

a) earn interest on bonds

b) purchase small house. (no need to pay tax).

Hello Sir,

It appears that the query has already been answered by other experts.

Feel free to get back if in case any of your question goes unattended.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP