The taxpayer needs to apply only capital gains amount in buying new property

Written by Sandeep Shanbhag | AN Shanbhag | Updated: Aug 31 2008, 08:16am hrs
I understand that I can save capital gains tax on the sale of property by investing the capital gains in property either one year before or two years after the date of sale. My question is in the first case, when the new property is being bought before the date of sale, how can anyone invest the capital gains amount since at the time of buying the new property, the sale hasnt yet taken place.


The law (Sec 54) only states that an amount equal to or more than the capital gains amount be invested in the new property. It is not necessary that the exact same amount realised from the sale has to be invested. As you yourself have pointed out, this is an impossibility, as the new house is being bought before the sale of the old house. Therefore, as long as an amount equivalent to the capital gains that is going to be incurred is invested in the new property, the provisions of Sec 54 are satisfied. You may even take a loan to buy the new property, it will still satisfy the provisions of Sec 54.

I trade in futures and options. I also earn Rs 50,000 per annum through a part time job. My income/profit from this would be business income. So am I right in assuming that I will not have to pay tax if this is below Rs 1.50 lakh


Yes, that is correct. If your total income, including that from your job and profit from F&O and is below Rs 1.50 lakh for the current year and Rs 1.10 lakh for FY 07-08, no tax would be payable by you.

Recently I read that though the limit for investing in Sec 54EC bonds (currently being issued by NHAI) is Rs 50 lakh per financial year, if you find that you need a tax cover of more than Rs 50 lakh, then it would help if the sale transaction is timed to take place in the last quarter of the financial year, in such a way that the six-month period would overlap two financial years. This would enable an investment of double the amount to Rs 1 crore

My question is that whether this is just a suggestion or an approach already accepted/approved by the Income Tax Department via prior rulings

Vijay Tambay

No there is no ruling or citation. It is a simple reading of the law. The law says that the limit is Rs 50 lakh per financial year. So over two financial years, it would be Rs 1 crore, provided other conditions in Sec 54EC are being satisfied.

My question is about capital gains. If we sell our house for say Rs 50 lakh. Then would we have to purchase another property worth Rs 50 lakh or would we only need to use the amount of capital gains I was under the impression that only the capital gains amount need be invested in property. However, my neighbour has sold his shop and his CA has advised him to use the entire sale proceeds.

Cherukuri Hari Babu

The confusion has arisen because you are contemplating the sale of your residential house, whereas your neighbour has sold his shop, which is a commercial property. Upon sale of residential property, Sec 54 is applicable for saving capital gains tax. Sec 54 requires the taxpayer to apply only the capital gains amount in buying the new property. However, when any asset other than residential house is sold, then Sec 54F becomes applicable, which specifies that the net sale proceeds have to be invested for shelter from capital gains tax.

My father and I have taken a joint housing loan for our flat. In this regard, Rs 1 lakh is allowed as Se. 80C deduction in the case of capital repayment. I just wanted to know whether we both can individually claim the Rs 1 lakh each year. Or should we repay Rs 50,000 each to claim the deduction


It is not clear from your query whether the property is also held jointly or not. If so, both of you will be individually eligible for a deduction of Rs 1 lakh on repayment of the principal amount, provided the total repayment of the principal amount throughout the year is equal to or exceeds Rs 2 lakh. Basically, the deduction is available only if property is owned and to the extent of ownership of property. So assuming a joint holding, each can claim equal deduction. However, if your ownership is in any particular ratio, you will have to apply the same ratio to the principal repayment to arrive at the amount deductible for each.

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