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Issues in taxation of capital gain

Chartered Accountant

For exemption u/s 54, investment of Long Term Capital Gain (LTCG) is sufficient & it has nothing to do with the amount of sale consideration.  To claim an exemption u/s 54F, investment of entire net sale consideration is relevant. 
Issues in taxation of capital gain
Query 1]
Please advise which ITR is required for my Mother (senior Citizen) for AY 17-18. She sold landed property in Aug’2016 to third party. The amount was received by online mode & DD for Rs. 45 Lakh. By this amount, she invested for new flat in 2016 itself (same year). Flat Sale Deed Agreement Value is Rs. 68 Lakh. Pattern of Registration is:
1. Mother (38%)
2. Elder son (31%)
3. Younger son (31%).
Whether exemption against purchase of new flat (38%) will be available to my mother? Income Tax of 68,000/- was paid by the builder since purchase value is above Rs. 50 Lakh. Rest of the Amount has been financed/ contributed by both sons by taking HB Loan. Sir, please advice which ITR has to be filled and steps to fill in. Whether son can claim income tax benefit available on housing loan against their share in the house property? [S.S.Rao -]
1.      The returns forms for the A.Y. 2017-18 (FY: 2016-17) are notified and its applicability for Individual/HUF is tabulated in the following chart:
ITR Forms Applicable to
1 Individual/HUF having income from salaries/ One House Property income/ other source income, provided that
(a) Total income doesn’t exceed Rs. 50 Lakh or
(b) Dividend income does not exceed Rs. 10 Lakh or
(c) No income u/s 115BBE or
(d) No relief is claimed u/s 90 or 90A.
2 Individual/HUF having no business/professional income
(ITR 2 & 2A have been merged into ITR 2 now)
3 Individual/HUF having business & professional income.
(ITR 3 & 4 have been merged into ITR 3 now)
4 Individual/HUF having income taxable on presumptive basis as their business & professional income.
(Present ITR 4 is similar to ITR 4S earlier)
  1. If your mother doesn’t have any business income, then she has to file her income tax return in ITR – 2.  ITR-1 cannot be used by individual having any capital gain income.
  2. Tax saving option by investment in the house property:
    a] Exemption u/s 54 is available if the capital gain arises from transfer of a residential house property whereas exemption is available u/s 54F if capital gain arises from transfer of any other capital assets (other than residential house property).
    b] In your case, it is not very clear whether your mother have transferred the house property or a vacant plot.
    c] If she has transferred the house property, exemption can be claimed u/s 54. However, if she has transferred vacant plot, exemption could be claimed u/s 54F. One needs to distinguish exemption claim u/s 54 vis a vis u/s 54F for the following reasons:
    a] For exemption u/s 54, investment of mere Long Term Capital Gain (LTCG) is sufficient & it has nothing to do with the amount of sale consideration.  To claim an exemption u/s 54F, investment of entire net sale consideration is relevant. 
    If your mother has sold the house property and if her LTCG is not exceeding the sum of Rs. 26 Lakh (i.e., 38% of Rs. 68 Lakh) then nothing would be taxable in her hand. However, if your mother has sold vacant plot for Rs. 45 Lakh then she would be eligible for proportionate exemption (and not full exemption) against LTCG as her investment in the new flat is only to the tune of around Rs. 26 Lakh as against actual sale consideration of Rs. 45 Lakh.
    b] U/s 54F, there is a stipulation that the taxpayer should not be owner of more than one house property. No such condition is there u/s 54. 
    c] U/s 54F, one more rider is there – The taxpayer should not purchase another residential house property within a period of 2 years (3 years for construction) after claiming an exemption u/s 54F. If taxpayer purchases/constructs another residential house property within said period, exemption claimed earlier would be withdrawn in the year of violation.
  3. Sons can claim income tax benefit as their investment (share) in the house property is by availing the housing loan.
  4. Procedure for online filing of return:
    For filing the return, you have to download the applicable return preparation form from & fill in the required personal information & income-related details therein. To ensure that all columns in the return form are filled in properly, there is a process to validate the information by clicking on the ‘validate’ button on the last sheet.  On successful validation, access the ‘generate XML’ link in the tax return software and save the generated XML file. It is the XML file which is uploaded by logging at  An acknowledgement form in ITR-V is generated on successful e-filing which then can be verified through aadhar number.
Query 2]
A residential house purchased by my father was sold in May-2016. I would like to know if the capital gain is invested in residential property which is under construction. Possession will be taken on completion which will be sometime in Dec-19. Can exemption of capital gain tax be availed? What documents need to be produced for claiming such exemption? [Arun Banerjee-]
1.      An Individual/HUF can save tax on Long Term Capital Gain (LTCG) arising from sale of house property by claiming an exemption u/s 54. For exemption u/s 54, taxpayer have to invest the amount of LTCG in purchase or construction of one residential house property within a prescribed time period. The prescribed time periods are as under:
a] For purchase:
One year before or two years after the date of transfer.
b] For Constructions:
Three years after the date of transfer.
2.      Readers may note that the time period for claiming an exemption is different for purchase vis a vis construction. For purchase of house property, the prescribed time period is 2 years only. In your specific case, you have sold the house property in May-2016. For exemption against purchase, you need to ensure that you get the house property by May-2018. If you are constructing house property on your own through contractor etc, then the period of 3 years (i.e., up to May-2019) would be permissible. Your completion of construction by Dec-2019 would result in denial of exemption claim u/s 54.
3.      Documents to justify the exemption claim:
Sale deed/investment documents would be sufficient to claim exemption against purchase of house property whereas bills/Voucher & other records showing incurrence of expenses (including sale deed against purchase of plot) would justify the claim of exemption against construction of house property.
4.      Scheme of Deposits in Capital Gain Deposits Account Scheme (CGDAS): 
Under section 54, taxpayer is allowed a time period of 2 years for purchase & 3 years for construction of the house property from the date of sale of original assets. However, the capital gain on transfer of the assets is taxable in the year in which the transfer took place (i.e., FY 2016-17 in your case). The return of income of that previous year has to be filed before the due date (i.e., July-2017 in your case). To offer the benefit of exemption at the time of filing the income tax return, Income Tax Act has specified a mechanism in the form of deposit under the CGDAS. The amount of the net sale consideration, which is not utilized by the taxpayer for purchase or constructions of the new house before the due date of furnishing the return of income, should be deposited by him in CGDAS, before the DUE DATE of furnishing the return. After deposits, the amount already utilized by the taxpayer for purchase/ constructions of the new house along with the amount so deposited, shall be eligible for exemption under section 54 in the year in which LTCG has arisen. Subsequently, taxpayer has to utilize the amount for purchase / construction, as the case may be, within a specified period of 2 or 3 years by withdrawing from the account. If the amount is not utilized for investment then the amount not so utilized would be taxable as the capital gain of the year in which the period of 3 years expires.  In short, non utilization of deposit in CGDAS makes the amount taxable at the end of 3 years.
The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
or email it at]

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