LONG TERM CAPITAL GAIN HOUSE,ADVANCE RECEIVED DATE RELATION?

Qus :I bought a flat in 2005( advance paid in Nov'05, Agreement dated Dec'05 and registration in Jan'06). Purchase value was Rs ...

Qus:I bought a flat in 2005( advance paid in Nov'05, Agreement dated Dec'05 and registration in Jan'06). Purchase value was Rs 32.56 lakhs.I wish to sell this flat now for Rs 71 lakhs. Please advise the following:

1. For fulfilling LTCG, which date should I take the advance cheque from the buyer?
2. By when should I have to invest the capital gain in another property?
3. And how much?

Raaja Debnath

The above question has been asked by Raaja and it is a interesting one so I am expressing my views on the above ,if any body have different view ,then he can express it in comment section.

First of all ,have a look on some income relevant income tax provisions

Capital gain chargeable section:(45)

(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections ................................., be chargeable to income-tax under the head Capital gains, and shall be deemed to be the income of the previous year in which the transfer took place.

so from the above provision, important conditions which should be fulfilled to make a transaction chargeable under capital gains

1. Profit and gain should arises from transfer of assets
   
2. Asset should be Capital Asset
3. Transfer should be effected In previous year.

so Important condition relevant to the present question is Effective Date of transfer.

Transfer has been defined u/s 2(47) of the income tax act .

transfer, in relation to a capital asset, includes,

• the sale, exchange or relinquishment of the asset ; or
• the extinguishment of any rights therein ; or
• the compulsory acquisition thereof under any law ; or
• in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment or
• the maturity or redemption of a zero coupon bond; or
• any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A 25 of the Transfer of Property Act, 1882 (4 of 1882) ; or
• any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Normally possession of immovable property is handed over on or after date of registeration but in some cases the possession may be given after the payment of the whole amount, In these type of cases which is covered under the section 53A of the transfer of property act,1882,transfer will be considered even the registration is yet to take place.

Ans-1
In your case ,I assume that you have taken the possession of the flat after the registration so the transfer takes place in January ,2006 so there years will be completed in January 2006 .so on the basis of above,in my opinion to get the benefit of the long term capital gain ,you should transfer asset in January 2009.but it does not mean that you can not receive advance from the buyer ,means you can take advance from the buyer but you should not transfer the asset(flat ) before completion of three year from date of acquisition date of the Flat ,to take the benefit of LTCG.

Ans-2
if transfer takes place before the 31st march you may invest amount under any of the two section ie 54 in another residential house or in bonds u/s 54EC the time limit is given as under


under section 54

1. purchase of residential house within one year befor the the transfer or within 2 year after the transfer.
2. construction of house within three year from date of transfer.

Under section 54EC

• invest in bonds within 6 month from transfer of asset(flat)

In both cases 54 or 54EC if amount is not utilized for above purpose before the due date of filing of income tax return (in your case it will be 31 july 2009 ,if flat is transferred before 31.03.2009 ),then underutilized amount should be deposited in Capital gain account scheme,1988 in bank and should be withdrawn and used from that account for purpose and within date as explained above.

Ans-3

in above case Long term capital gain will be calculated as below (if date of transfer is before 31.03.2009)


71.00 lakh =Net consideration
38.13lakh= less:indexed cost of acquisition (32.56 X 582 /497=38.13)
========
32.87 lakh=long term capital gain
=======


so the amount which you should invest in residential house u/s 54 or in bonds as available under 54EC is 32.87 lakh rs.Means no need to invest whole of the consideration.of course you can invest more but if amount invested is less than the capital gain amount then balance long term capital gain will be taxable in your hand.one more point you should note that after investing in any of the above option ,if new house/bond is transferred before three year than whole LTCG exempted in this transaction will be taxable in the previous year in which transfer of new house/bonds takes place.

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