The Hindu Business Line : Capital gains: Riding on house property

She has received some advances before the registration. Will the date of receiving advances be of any impact in determining when the capital gain arises?

My wife and myself have purchased a flat in joint names at Bangalore. For this purpose we have taken a housing loan from a bank.

We have paid the instalments consisting of principal and interest to the bank.

The construction of the flat has just been completed, and the registration will take place in our joint names in a month's time.

Will the reinvestment in the flat along with me entitle my wife to an exemption from the capital gains on sale of the flat?

Can we both claim the interest and principal on the housing loan as a deduction/rebate?

If the answer is in the affirmative, is this to be done in the proportion of investment made by us?

V. R.

Reply

The point when the capital gains is deemed to accrue will purely depend on the terms of agreement between the promoter and the land owners.

Where the agreement is of such nature that possession is given in part performance of a contract, the liability to capital gains tax will arise on the handing over of such possession to the builder.

If the possession is not transferred but is deferred until the construction is completed the liability to capital gains tax will arise in the year in which the construction is completed by the developer.

This will be so for in such a case the builder is given only a right to enter the premises for the purpose of construction, the ownership continuing to remain with the landowners. At any rate it cannot be said that the capital gains will arise when the undivided share in land is transferred to the proposed flat purchasers. The date of receipt of advances will also have no effect in determining the time when the capital gain arises.

On transfer of a long-term capital asset not being a residential house and on reinvestment in a residential house, an exemption uner Section 54F can be claimed on the following basis:

If the amount invested is more than or equal to net consideration, the whole of the capital gain.

If the amount invested is less than the net consideration, amount invested x capital gain/net consideration.

The exemption is available subject to the following conditions:

The assessee is an individual or a HUF.

The asset transferred is a long-term capital asset not being a residential house.

The assessee on the date of transfer of the capital asset does not own more than one residential house other than the new asset.

The assessee within the period of one year before, or two years after, purchases or within the period of three years completes construction of a new residential house.

The assessee does not within a period of two years purchase or within a period of three years construct any residential house other than the new asset.

The reader and his wife can claim a deduction in respect of interest in computing their income from house property commencing from the year in which the purchase or construction of the house property is complete.

Interest up to the previous year immediately preceding such previous year can be claimed in five equal annual instalments commencing from the year in which the purchase or construction is complete.

Rebate under Section 88 in respect of principal repayment subject to the limits prescribed in that section can also be claimed by the reader and his wife.

The interest and principal repayment are to be apportioned on the basis of the share in the flat of the reader and his wife.

If their shares are in the proportion of their investments, the same can be apportioned on that basis.

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