Capital gains tax exemption available to HUF

By: |
New Delhi | October 11, 2017 2:43 AM

Under Section 54, taxpayer has to either purchase or construct one residential house for the purpose of his own residence, within the prescribed period.

Capital gains, tax exemptionAssuming that you are a tax resident of India for the financial year 2017-18, your global income is taxable in India. (PTI)

 

Assuming that you are a tax resident of India for the financial year 2017-18, your global income is taxable in India.An HUF (which consists of myself, my wife and my two daughters) sold a non-agricultural land recently. The land was purchased in 2010. Is there any exemption benefit available to HUF?

– Mukesh Kumar

Section 54B of the I-T Act provides for exemption from long-term capital gains tax on transfer of land used for agricultural purposes (for at least two years prior to the date of transfer), subject to fulfillment of certain conditions. The said exemption is also available to the HUF. One of the important conditions is that the capital gains should be reinvested in the purchase of agricultural land in the next two years.

I received fees from a client in the US after deduction of tax (30%). Will such fees be taxable in India. If yes, will I get the credit of taxes deducted by client?

—Subham Bose

Assuming that you are a tax resident of India for the financial year 2017-18, your global income is taxable in India. Thus, the fees received by you from a US based client shall be subject to tax in India. In order to avoid the double taxation, you will be granted the foreign tax credit of taxes withheld in the US. However, where US tax actually levied is in excess of the rate specified under Article 12, the amount eligible for tax credit will remain confined to the amount computed on the basis of the rate prescribed under the India-US tax treaty, i.e., 15%. Further, the amount of foreign tax credit shall be restricted to the amount of tax payable on such income in India.

After purchasing a house property out of the cash gifted by my husband, I sold it and bought 25% share in another house owned by a distant relative. Will this purchase be sufficient to claim exemption under Section 54.

—SP Rao

Under Section 54, taxpayer has to either purchase or construct one residential house for the purpose of his own residence, within the prescribed period. The section is silent on the issue as to whether mere purchase of interest in a residential house is sufficient, provided all other conditions are fulfilled, to claim exemption. However, it can be inferred that when the Act enables tax exemption in respect of purchase or construction of a residential house, purchase or construction of a portion of the house should also enable exemption. It is possible that a person may not be able to buy the entire residential house. Section 54 should not be interpreted in a manner which would disentitle the taxpayer to claim the exemption. This view is supported by a judgment delivered by the Gujarat High Court.

The writer is the founder of RSM Astute Consulting Group. Send your queries to fepersonalfinance@expressindia.com

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