I purchased a flat for Rs 3 lakh in 2002. I am selling it for Rs 25 lakh now and will use the entire money in renovating my ancestral home. Will the capital gains made on selling of flat be liable to tax ?
– Arvind Gaur
As per Section 54 of Income Tax Act, any long term capital gain arising from the sale of a residential property shall be exempt to the extent such capital gain is invested in the purchase of another residential property within one year before or two years after the due date of transfer of the property sold or construction of residential house property within a period of three years from the date of transfer/sale of property. Since, the requirement under this provision is to buy or construct a house, the amount spent on renovation of the existing house will not be allowed covered under Section 54. However, if any new construction is done in this house like construction of another floor, it could be allowed as an investment under this provision.
My father got a Lucknow Development Authority plot through lottery in 1979 of 200 sq.yards. After his death, my mother mutated the plot in her name. However, someone grabbed the land and constructed a house. After we filed an FIR, he agreed to purchase it for Rs 75 lakh. The bank has set the market value (plot and house) at Rs 95 lakh and the person will purchase stamp paper for that value. Since the difference is Rs 20 lakh what will be the tax implication?
Under Section 50C, if the actual consideration from selling an immovable property is less than the stamp duty value, the stamp duty value shall be considered the sale value of the property. However, this provision also allows recourse to the assessee to contend that the fair market value of the property sold is actually less than the stamp duty value and the officer may refer the same for valuation. Hence, in this case, if the stamp duty value for the whole property (including land) is registered for Rs 95 lakh and you have made a sale deed for `75 lakh, the income tax authority may try to tax the difference of `20 lakh as income for your mother. However, assuming that you have adequate documentation in this regard, the reason for difference can be explained that your mother has sold only the land and the stamp duty value belongs to the whole property. The income tax authority will take cognizance of the same. However, for the aspects relating to stamp duty, those need to be checked separately.
Amit Maheshwari is partner, Ashok Maheshwary & Associates LLP. Send your queries to firstname.lastname@example.org