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Ask Mint Money | Capital gains used to build new house exempted from tax

Ask Mint Money | Capital gains used to build new house exempted from tax
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First Published: Wed, Feb 09 2011. 09 37 PM IST
Updated: Wed, Feb 09 2011. 09 37 PM IST
I paid Rs2.8 lakh as stamp duty plus Rs15,000 towards registration charges for purchase of a residential flat this year. I understand that I can claim Rs1 lakh under section 80C this fiscal year. Now can the remaining amount of Rs1.8 lakh be carried forward for claiming rebate under 80C from next fiscal onwards?
-Sudershan Pal
The deduction under section 80C is allowed on payment basis. As per section 80CCE of the Income-tax Act, the aggregate amount of deductions under section 80C, 80CCC and 80CCD is restricted to Rs1 lakh. This, however, does not mean that amount incurred in one year can be carried forward to subsequent years for claiming the aforesaid deduction. In view of the aforesaid, out of the entire amount of Rs2.95 lakh (i.e. Rs2.8 lakh plus Rs15,000) paid by you, only Rs1 lakh shall be allowed as a deduction in the year in which the stamp duty and registration charges are paid and the balance amount of Rs1.95 lakh shall lapse and will not be carried forward to the succeeding years. This answer is based on the presumption that the flat is complete and is not under construction.
I have an ancestral property in my name. Now it is being sold for Rs50 lakh. To avoid capital gains tax, I plan to construct a house wherein the cost to be incurred towards purchase of land and construction would be approximately Rs70 lakh. I plan to take a housing loan of Rs25 lakh and use Rs45 lakh of the sale proceeds towards construction. Does it imply that I have to invest the entire sale proceed of the property into this new construction? What could be the tax implications?
-Sruthi
As per section 54(1) of the Income-tax Act, where long-term capital gain arises on transfer of a residential house by an individual and a new residential house is purchased, within a period of one year before or two years after the date of transfer or constructed within a period of three years after the date of transfer, then the cost of the new house shall be reduced from the capital gains so computed and the balance shall be taxed. Hence, the capital gain arising on transfer of the ancestral property would be exempt to the extent capital gain is utilized for construction of the new house. Further, the construction has to be completed within three years from the date of transfer. Since you have not mentioned the cost, it is not possible to compute the capital gain arising on the transfer of the property. The amount which is not appropriated towards purchase or construction of the new house before the due date of furnishing the return of income has to be deposited in the Capital Gain Account Scheme before the aforesaid due date. The amount so deposited has to be used for construction of the house within three years from the date of transfer.
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First Published: Wed, Feb 09 2011. 09 37 PM IST