Option to Save Capital Gain Tax without investment in the House Property

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Option to Save Capital Gain Tax without investment in the House Property

Query 1]

  1. a)I have a flat at Nagpur. I wish to sell the same. I do not require another flat? How can I minimize tax liability on profit arising due to sale? [Subhash Swami – scswami@gmail.com]
  2. b) I have sold three plots in the current year in May– 2022. The capital gain on sale of each plot is around Rs. 35 Lakh. I already have two house properties and so I am not eligible for capital gain exemption u/s 54F as mentioned in your earlier issues of The Tax Talk. Can I invest Rs. 35 Lakh each at three occasions to save capital gain Tax U/s 54EC? [Kamal Karnani, Raipur]

Opinion:

  1. First Query:
    One of the most easy options for saving capital gain tax arising on sale of immovable property could be by making investment in another house property. You don’t intend to buy another house property. You can explore the following options of saving tax.
  2. a)Exemption U/s 54 EC by Investment in the Specified Capital Gain Bonds:
    Taxpayer can save Long Term Capital Gain (LTCG) arising from sale of immovable property by making investment in the specified capital gain bonds within a period of 6 months from the date of capital gain.
    Specified Capital Gain bonds for the purpose of section 54EC are the  bonds issued by
    i) National Highway Authority of India ( NHAI)
    ii) Rural Electrification Corporation (REC)
    iii) Power Finance Corporation Ltd (PFC)
    iv) Indian Railways Finance Corporation Limited (IRFC)

It may be noted that exemption under section 54 EC has a lock in period of 5 years. Exemption is allowed only if the capital gain bonds are held for a period of 5 years. In case the bonds are sold before the expiry of 5 years, the exemption under section 54EC stands withdrawn.

  • b)Adjusting Long Term Capital Loss:
    If you have any assets like shares/ mutual funds, etc wherein the market value is lower than your cost of acquisition then you can plan to book the loss of the same. Any Long Term or Short Term Capital loss on sale of capital assets can be adjusted against the LTCG arising from sale of the flats.
  • Second Query:
    There is an annual ceiling of Rs. 50 Lakh for claiming an exemption U/s 54EC . Rs. 50 Lakh ceiling is applicable on asset-wise basis but on yearly basis. In your case, by making three different investments of Rs. 35 Lakh, capital gain exemption cannot be multiplied and the exemption shall be restricted to Rs. 50 Lakh only.

 

 

Query 2]

We (Husband and wife] are purchasing a house property for Rs. 95 Lakh from a builder. In addition to the amount of Rs. 95 Lakh, we are required to pay the amount of electricity deposit, parking fees & maintenance deposit to the tune of Rs. 7 Lakh. Whether we will be required to do the TDS considering the fact that the individual share of each of the co-owner / joint purchasers is less than Rs. 50 Lakh? The builder is demanding the payment without TDS as the amount of each co-purchaser is less than Rs. 50 Lakh. [mit******awal158@gmail.com]

Opinion:

  1. For reckoning the limit of Rs. 50 Lakh, “consideration for transfer of any immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property. In your case, the consideration of each person after including above referred charges is exceeding Rs. 50 Lakh and so the TDS U/s 194IA would be applicable.
  2.  Even otherwise, in such a situation where the sale consideration of the property is exceeding Rs. 50 Lakh but there are multiple buyers or multiple sellers in the property as a result of which the amount per person is below Rs. 50 Lakh, it is advisable to comply with the TDS provision so as to avoid the subsequent notices and litigation.
  3. The taxpayers may note that the Finance Act – 2022 has further provided that the TDS on immoveable property will be applicable on the stamp duty value of the property if it is higher than the Actual purchase price of the property.

 

Query 3]

My HUF is a partner in a firm. Whether remuneration received from the firm will be taxable as income of the firm or as income of the Karta? [KMC]

Opinion:

Hon’ble Supreme Court in the case of Brij Mohan vs. CIT 201 ITR 831 (1993) has held that where the receipt is a compensation made for the services rendered and not for the return of investment, it is to be treated as individual income of the partner. In my considered opinion & as a matter of routine taxation, the remuneration received by Karta as representative of HUF cannot be treated as income of the HUF. [Remuneration will be income of HUF only when there is direct nexus between family funds and remuneration paid. Where members of HUF become the partners in a firm by investment of family funds & not because of any Special Services rendered by them, then the income will belong to HUF as held in Lachman Das Bhatia & Sons vs. CIT [2007] 162 Taxman 118 (Delhi), D.N. Bhandarkar v. CIT 158 ITR 724 Kar (1986)]

2 Comments

  1. June 20, 2022
    Hitesh Merchant

    Excellent way to communicate & educate common man. Ca Naresh Jakhotia ji & team “Tax Talk” – Keep up doing the EXCELLENT WORK👍💐
    CA Hitesh Merchant, Mumbai .

    Reply
  2. June 21, 2022
    Rajiv Javeri

    Thanks a lot it gave clear understanding..Sir capital gains or consideration of property if investment in residential house or flat purchased in the name of son daughter or wife..will benefits of deduction from capital gains will get..though court allows…but legal position be some time state..thanks

    Reply

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