Services:Tax / Accounting
Exemption on house property
T. Banusekar
I own a house property and I propose to sell the same. How long should I have held the property for claiming exemption from the capital gains on sale of the property? – Jerod
The property should be held for a period exceeding three years for it to be treated as long-term capital gains. If so held and if the gain is treated as long term, you can claim exemption by reinvesting either under Section 54 or Section 54EC. Under Section 54 an exemption is available on transfer of one residential house and on reinvestment in another residential house.
This exemption is available subject to satisfying the following conditions: the assessee is an individual or HUF; the gain arises from the transfer of a residential house being a long term capital asset; the income from such asset is chargeable to tax under the head income from house property.
The exemption would be available to the following extent: if the amount invested is more than or equal to the capital gain, the whole of the capital gain; if the amount invested is less than the capital gain, then to the extent invested.
The exemption under Section 54EC is available subject to satisfying the following conditions: the asset transferred is a long-term capital asset; the investment is in bonds of the National Highway Authority of India or Rural Electrification Corporation, which are redeemable after a period of three years.
If the exemption should be claimed under Section 54EC, the investment should be made before the expiry of six months from the date of transfer of the capital asset.
The exemption would be available to the following extent: if the amount invested is more than or equal to the capital gain, the whole of the capital gain; if the amount invested is less than the capital gain, then to the extent invested.
You may also note that the investment for the purpose of claiming exemption under Section 54EC cannot exceed Rs 50 lakh.
I own a house property at Chennai which has been leased out to a company for two years. Is there any change in Section 194-I with regard to the quantum of rent on which tax is not deductible at source? I understand that previously the limit was Rs 1 lakh per annum. – T. Selvadorai
Under Section 194-I, the limit for deducting tax at source is and has always been Rs 1,20,000 per annum and not Rs 1,00,000 as stated by you. This limit has not undergone any change.
My mother had settled a house property in May 2008 in favour of me and my sister, which was purchased by her in the year 1988. We now propose to sell the same. Will the sale of the house property attract short-term capital gains in the hands of my sister and myself? – Ganapathy
The gain will be treated as long-term capital gains and not as short-term capital gains. You may note that the period of holding of the previous owner is also to be taken for determining whether the asset is long term or short term in certain circumstances, which would also include a gift.
In your case, since the property was acquired by your mother in 1988, the period of holding would be computed from then when you and your sister sell the same now. This would be so even though the property was gifted to you and your sister, by your mother in May 2008.
I gifted RBI tax-free bonds to my spouse and the interest from such bonds is tax-free. Will the clubbing provisions alter the taxability of the same in the hands of the donor/donee? – V. Ganapathy
The interest on the RBI tax-free bonds gifted by you to your wife will not be taxable and will continue to be exempt.
Even though the clubbing provisions may apply when there is a gift from one spouse to another, given that the income is exempt, the same will continue to be exempt even after the clubbing provisions are applied. Insofar as the donee, that is,. your wife is concerned, there will be no tax implications on the gift received by her as it is received only from a person referred to as in the exclusionary provisions of section 56(2)(vii).
In your column dated July 19, 2009, you have stated that the period of holding for calculation of capital gains begins from the date of registration.
How is the same to be calculated in the following situation?
Sale deed for the value of undivided share in land was registered on May 31, 2006. Memorandum of understanding with the builder for construction was entered on December 11, 2006, and payments were made to the builder in installments based on progress of construction.
Possession of the flat was given on July 9, 2008. Property tax was paid in my name from the second half of 2008. – T.V. Ranganathan
From your query it appears that you have entered into a sale deed with the builder for acquiring the undivided share in land which was registered on May 31, 2006, and further that you have entered into a construction agreement with the builder for construction of the flat on December 11, 2006, which flat was taken possession of only on July 9, 2008.
In such circumstances since you are the owner of the undivided share of land even from May 31, 2006, that would be taken as the date of acquisition and the period of holding of the undivided share in land would be computed from that date.
Insofar as the flat is concerned the ownership and possession of the flat vests in you only on July 9, 2008, and therefore that would be taken as the date of acquisition and the period of holding in respect of the flat would be computed from that date. Prior to July 9, 2008, you may note that you are not the owner of the flat and at best it can only be said that you had a right to get the flat constructed.


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