Skip to main content

Get capital gains benefit in case of project delay

Get capital gains benefit in case of project delay
Only the amount invested during the stipulated time mentioned in the law will be eligible
Recently, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) ruled if a taxpayer invests capital gains of one house property into an under-construction flat, it should be considered at par with him constructing his own house, rather than a purchase
The ruling brings relief to taxpayers facing project delays, by giving them an additional year. Section 54 of the I-T Act deals with capital gains from a house property. It says taxpayers can get the capital gains tax benefit only if they invest in a new property one year before the sale of an old one or two years after it. When a person is constructing his own house, he needs to invest the money within three years and complete the property in this period
“Tribunals have taken the view that when an individual buys a property in an under-construction project, it can be considered as ‘selffinancing’ the house. The developer is just constructing it and, therefore, it can be considered as construction, instead of purchase,” says Neha Malhotra, executive director, Nangia & Co. She says tribunals and courts have mostly ruled in favour of taxpayers, as this is an exemption section
But, what happens if the developer doesn’t deliver the project on time? If one takes a strict interpretation of the laws, the taxpayer stands to lose the capital gains tax benefit if a project is delayed beyond the time specified in the law. A few tribunals and courts have provided relief for delays by developers in completing the project, allowing them to still take the benefit. “While the individual may be eligible for the benefit, he would only get the deduction for the sum deployed within those three years. Anything paid beyond would not be considered,” says Naveen Wadhwa, general manager,
The same principle will apply when a person is constructing a flat. He can get the benefit even if the construction is not completed on time. If a person buys a property from a developer, the project is considered completed when it receives an occupancy certificate. But, experts say when it comes an individual constructing his own house, there are no benchmarks to say when is it actually completed. Courts and tribunals, therefore, allow the tax benefits for the money deployed within the stipulated period of three years.
There have also been cases based on the language used in the tax law. Capital gains relief is provided when someone purchases a flat one year before or two years after selling the old property. But, when constructing a flat, it’s three years after the date of sale.
What if the person starts construction one year before selling the flat? Will he still be eligible? According to experts, the taxpayer can still get the benefit of capital gains tax. But, only the money that’s invested after the sale of the flat will be considered for the benefit.
In such situations, claiming capital gains benefit can get tricky. “Taxpayers should keep proper invoices, with dates clearly mentioned, to be able to show to the authorities when needed,” says Malhotra. If you hire a carpenter or contractor that gave you handwritten bills, the tax authorities may not consider such documents.
The Business Standard, New Delhi, 29th December 2017


Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …