Capital Gain Exemption on sale of properties & Investment in more than one house property
Query 1]
How many properties can I buy or invest in to save on LTCG after selling a single property?
Query 2]
I wish to sell my flat as well as 2 plots and want to invest in house property. Whether I can get capital gain exemption on sale of flat and plot if I purchase more than 1 house property?
Opinion:
1.Long Term Capital Gain (LTCG) arising from transfer of any capital assets can be saved by investing the amount for purchase or construction of another house property. Section 54 provides exemption if gain arises from transfer of any residential house property whereas Section 54F does the same if it arises from transfer of any capital assets (other than residential house property). Under both the sections, capital gain is exempt if the amount is invested towards purchase or construction of a new residential house within the specified time frame which isas under:
a] For purchase:
One year before or two years after the date of sale or transfer.
b] For Constructions:
Three years from the date of sale or transfer.
2.If a person sells both, house as well as plot in the same year (or say multiple properties), the exemption under section 54 & 54F can be claimed simultaneously by investing the amount in a single house property. There is absolutely no bar or restriction for utilizing the amount from multiple properties for investment in one single house property. Capital gain exemption is freely available in such a case.
3.Taxpayers must note that exemption U/s 54 as well as U/s 54F is available only if the investment is done in “one” house property.
However, subject to strict terms and conditions, Section 54 now extends the benefit of exemption on investment in 1 house property to 2 house properties. The conditions for 2 house properties is as under::
a) The amount of capital gain should not exceed Rs 2 crore. [The restriction of Rs. 2 Cr is on the amount of LTCG & not on the amount of “Sale Consideration”. Even if the sale consideration exceeds Rs. 2 Cr, still exemption can be claimed if capital gain amount is not exceeding Rs. 2 Cr threshold].
4.b) Exemption against two house property is “once in a life time” If the taxpayers have already availed exemption against two house properties in earlier year then they will not be able to opt for it again anytime in future.
3.Benefit of Two House Property is not available U/s 54F:
a) Taxpayers selling plots as well as house need to be careful while planning for capital gain exemption by investing the amount in more than one house property. It must be carefully noted that if LTCG arises from sale of any capital assets other than house property (like plot, gold, etc) then exemption can be claimed u/s 54F and not U/s 54.
b) Benefit of exemption against ‘two’ house property is only under section 54 & not under section 54F. In short, if the LTCG arises from transfer of any capital assets other than residential house property then investment has to be done in ‘one’ house property only.
c) Exemption u/s 54F is further subject to the condition that taxpayers own not more than one house property on the date of earning LTCG. If a taxpayer already owns more than one house property then exemption u/s 54F is not available. There is no such stipulation for claiming an exemption u/s 54.
d) If any taxpayers have capital gain from sale of plot then they need to be careful while planning for an exemption U/s 54F vis a vis investment in more than one house property & the condition of owning not more than 1 house property.
e) There is one more stipulation in section 54F which is not there in section 54. Section 54F stipulates that taxpayers should notpurchase any other house property within a period of 2 years or construct another house property within a period of 3 years from the date of earning LTCG. If taxpayers violate the condition by purchasing another house property within a period of 2 year (3 years for construction) then exemption allowed earlier will be taxable in the year of such violation. There is no such rider in section 54.
4.Section 54 Vs. Section 54F:
a) Benefit of exemption by investment in two house properties is available only u/s 54 & not U/s 54F.
b) For exemption u/s 54, investment of LTCG is important and not sale consideration whereas for exemption u/s 54F, investment of net sale consideration is relevant and not LTCG.
Though the purpose of both the sections (54 & 54F) is same i.e., to grant an exemption from LTCG, the conditions & stipulations are quite different. In view of the above, the taxpayer needs to be careful while planning to claim an exemption against investment in more than two house properties.
Conclusion:
Each and every case is different. With the above overview of the provision related to capital gain exemption, taxpayers have to work out permutation and combination according to their individual need and requirements. Needless to say, the timing of each and every transaction can also be planned so as to have the optimum benefit of capital gain exemption.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
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