Availing section 54 benefit on sell of residential house

January 28, 2010

Question – I made long term captial gains of Rupees 30 Lakhs by selling my mumabi flat on Feb 1, 2008. I did not deposit the money in the Captial Gains Account in the Bank. But I re-invested all the gains in an under-construction residential project on June 1, 2008 (before filing my returns for the year). I claimed the exemption of long term captial gains in my tax returns(AY 2008-2009) by showing this re-investment in under-construction project. However, now after 18 months of booking my flat, I intent to cancel this booking in the under-construction project and re-invest it entirely in a ready to occupy home (before 2 years of selling my mumbai flat). Is my claim of tax exemption(AY 2008-2009) still valid if I do that? If yes, do I need to inform the IT about the change in status of the re-invested home.

Answer – Dear friend, B4 I comment on ur query, here is the Section 54, which u want to use for ur Tax benefit.

Quote –
Section 54


(1) Subject to the provisions of sub-section (2), where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head ‘Income from house property’ (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, aresidential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, – (i) If the amount of thecapital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of thecapital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset anycapital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil………..

Unquote –
Now from the facts of ur case, U fulfilled the condition of investing ur money in an under const. house b4 filing of ur return. The same was accepted by the Income Tax department.
Once opted for under construction house, To claim Tax benefit on LTCG, the completion of this house is mandatory within 3Y i.e. on or b4 31st of January 2011.

Here I`m agree with dear subasu that carry over of money from under construction house to ready built house `ll nullify ur earlier claim of Tax benefit on LTCG & u w`d have to pay Tax in this FY (2009-2010).