CAPITAL GAIN EXEMPTION IF TWO ASSETS ARE SOLD IN TWO DIFFERENT FY & INVESTED IN ONE HOUSE IN ONE FY
Query 1]
My brother has purchased a Residential House Property in January – 24 for Rs 2.81 Cr including stamp duty & registration charges. For this purpose, he sold long term shares worth Rs 1.60 Cr during Oct – 2023 to Dec-2023. The balance amount was financed by availing the housing loan from State Bank of India. In the ITR for FY 2023-24, he has claimed an exemption u/s 54F. With this background, we have following question:
1.If he again sells some shares to the extent of Rs. 1.21 Cr (so that the total sale proceeds of Rs. 1.60 Cr plus Rs. 1.21 Cr is completely invested in the house of Rs. 2.81 Lakh), whether exemption u/s 54F in FY 2024-25 would be available against the same residential property purchased in January – 24? I have been told by one income tax officer that the exemption cannot be claimed as the word used is “transfer of any long term capital asset” and not “assets” and so exemption can be claimed against sale of “one asset” only. It is further told that the exemption cannot be claimed against purchase already done in earlier years. Is there any case law in support of these as in earlier years, one of our relatives was denied capital gain exemption in similar types of transactions.
2.If yes, whether it would be compulsory to use the amount of Rs. 1.21 Cr for repayment of the housing loan or capital gain exemption would be admissible even without repayment of the housing loan?
3.If no, whether the capital gain exemption can be claimed by investing the amount of Rs. 1.21 Cr in the capital gain bonds issued by NHAI/REC? [kish*******@gmail.com]
Opinion:
1.The question is whether the capital gain exemption would be available if two or more assets are sold in two different financial years & invested in one house in one financial year. As far as first part of your query is concerned, it may be noted as under:
a)Capital Gain exemption U/s 54F shall be admissible under section 54F during the FY 2024-25 against the purchase of the house property in the FY 2023-24. You need to ensure that the shares are sold in the FY 2024-25 within a period of one year from the date of purchase of your flat of Rs. 2.81 Cr i.e., on or before January – 2025. Since the sale proceeds of Rs. 1.60 Cr is only used against the investment of Rs. 2.81 Cr, balance of Rs. 1.21 Cr is an unused amount eligible for exemption U/s 54F in the subsequent financial years.
b)The fact that the investment has already been done in earlier year (i.e., in the FY 2023-24) is not a bar for your capital gain exemption in the FY 2024-25 as section 54F has provided a leverage to the taxpayer to claim exemption by buying the property first and claim deduction later.
c)If the liberal interpretation of the word “assets” is taken, it would result in an absurd result and may not be in accordance with the purpose & spirit of section 54F.
d)One can rely on the following cases for capital gain exemption in such cases:
i)DCIT Vs. Shri Pankaj Chimanlal Patel (HUF) [ITA No. 3179/Ahd/2016]
ii) Mrs. Krishnadevi Kejriwal Vs. ITO WD 14(2)(1), MUMBAI[ITA No. 93/Mum/2009]
iii) Anagha Ajit Patnekar vs. ITO Ward [ITA No. 3810/Mum/2003]
iv) ACIT Vs. Mahindrakumar Jain (2017) 84 com 141 (Del).
1.With respect to purchase by availing a housing loan in earlier year, it may be noted that the repayment of the housing loan is not necessary. The capital gain exemption would be admissible even if the housing loan is not repaid.
2.Capital gain exemption up to Rs. 50 Lakh under section 54EC by investment in the specified bonds issued by issued by REC/PFC/IRFC is available only if the capital gain arises from transfer of land or building or both and not otherwise. The capital gain arising from sale of shares would not be eligible for exemption under section 54EC.
Query 2]
I request your guidance regarding Tax liability if the shares of the co are transferred from an existing demat account to another demat account opened with another co (broker). The transferor company (broker) has issued the P & L / Capital gain statement wherein such shares are shown in Capital gain / P&L statement and STCG & LTCG total shown Rs 2.00 lacs plus. In-fact, there is no sale / Purchase transaction and the shares are intact in the transferee demat account. Please guide suitably as per the provisions of law, so that the IT return can be filed properly and there should not be any problem in future from the IT authorities? [L.K. Keche – kechelaxman@gmail.com]
Opinion:
- Shifting of the shares by any person from his one demat account with one broker to his other demat account with another broker do not attract any income tax or capital gain as such.
- The mere fact that the brokers report showing the amount in the Profit / Loss statement issued by them doesn’t make the transaction taxable as such.
Query 3]
Can a husband gift a Substantial amount from sale proceeds of house property to his wife without Tax liability. [Krish Surya – suryanarayan1962@gmail.com]
Opinion:
There is no bar or restriction on gifts of substantial amounts, received by whatsoever source, by husband to wife. However, income arising to your wife out of the said amount will be required to be clubbed with your income in view of the clubbing provision of section 64(1)(iv) of the Income Tax Act-1961.
[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]
