I’m promoting my flat in Dharuhera, Haryana, and my mom is promoting a flat in Laxmi Nagar, Delhi. We plan to take a position the cash from this sale in a single house in Gurgaon inside a 12 months. Do we have to deposit the cash in any particular account? I’m additionally taking a mortgage from my mom to repay the house mortgage on my flat in Dharuhera and will her pay again from the proceeds of the sale. What is the tax legal responsibility with these transactions?
—Aman Kishore
Section 54 of the Income-tax Act, 1961, supplies for deduction towards the long-term capital acquire (LTCG) arising from the sale of a residential home being held for greater than two years.
This deduction is offered the place the quantity of LTCG arising from such sale is both invested to buy one other residential home in India, inside a 12 months earlier than or two years after the switch of unique asset or the identical is invested to assemble a brand new home inside three years of the switch of unique asset.
The deduction will probably be obtainable to the extent of LTCG invested. In case the LTCG can’t be invested for buy/development of the brand new home until the date of furnishing the return below Section 139 of the Act, then such quantity might be deposited earlier than the due date of submitting tax returns in a specified Capital Gain Account Scheme (CGAS) checking account with licensed banks and utilized within the method prescribed, to avail of the deduction.
We perceive that you simply and your mom are promoting your properties and plan to take a position the sale proceeds to buy one new home in India, which might be owned collectively by you and your mom. As additionally held in judicial precedents. you and your mom might each declare deduction u/s 54, if the respective LTCG quantity earned from sale of the respective properties, are both invested in (i) the brand new home in India and / or (ii) the identical is deposited below the CGAS, earlier than the due date of submitting the unique tax return.
However, please word that in case you aren’t in a position to buy/assemble the brand new home inside the specified interval below this part, the quantity of deduction claimed by you earlier shall be thought-about as taxable revenue within the 12 months during which the time restrict of three years from the date of switch of the unique asset expires. Further, in case the brand new home is transferred inside a interval of three years from the date of buy or development, then for the aim of computing the capital acquire, the LTCG for which deduction is claimed earlier will probably be diminished from the price of acquisition of the brand new home.
Further, availing of mortgage from mom to repay the housing mortgage in your unique asset and compensation of the identical from the sale proceeds of the property wouldn’t entice any tax implications so long as the quantity of LTCG earned from the sale of the property is invested as talked about above. In case the whole quantity of LTCG earned by you just isn’t totally invested, then the deduction can be restricted to extent of the quantity invested by you and the steadiness LTCG will probably be taxable in your fingers.
Parizad Sirwalla is accomplice and head, international mobility providers, tax, KPMG in India.
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