The Hindu Business Line : Rebate on capital gains on delisting of shares

I earned capital gains on delisting of shares on January 2. To claim exemption u/s 54EC, do I need to reinvest in the capital gains bonds of REC before March 31 or within six months? — Laxman

Exemption can be claimed by reinvestment under section 54EC if the asset transferred is a long-term capital asset, the investment is in bonds of the NHAI or REC, and the bonds are redeemable after three years.

If the exemption is to 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. There is no requirement that the reinvestment is to be made before the end of the financial year. It may be noted that the amount that can be reinvested in bonds for this exemption cannot exceed Rs 50 lakh.

However, mere delisting of shares cannot result in capital gains. Examine if capital gains has arisen in your case.

I have two brothers. Our father purchased land in 1972 for Rs 2,500 and constructed a house in 1977 for Rs 30,000 (ground floor). In 1995, he spent Rs 2 lakh for constructing first floor. He died in 1997.

We demolished the house and constructed five flats. We occupied three flats and two were sold for Rs 27 lakh – which we utilised for meeting the construction expenses. My brothers paid me Rs 3 lakh because I was allotted a smaller flat, to effect equal distribution of the property. Please clarify if we have to pay any capital gains tax; more particularly from my side, as I received Rs 3 lakh? — G. Ramesh

Capital gains would certainly arise when the two flats were sold. There would also be transfer of shares of land to the buyers of the flats. Long-term capital gains will arise on the transfer of such land. Short-term capital gains will arise on the sale of the flats.

Exemption may be available u/s 54F on the capital gains arising from the sale of land as a result of the reinvestment in the new flat. No capital gains will arise on the Rs 3 lakh as this is only a part of the family settlement.

The cost of acquisition of the undivided share in land would be the proportionate cost of such land compared to the value of the land.

You may note that the land’s fair market value as on April 1, 1981, can be substituted as its cost of acquisition.

The construction cost incurred by your father cannot be taken into account as you have demolished the building and only sold the vacant land and the new flats.

To avail exemption u/s 54F, an assessee should not own more than one house on the date of transfer. Is this including the new house or excluding the new house purchased or constructed?

Should the investment in purchase or construction of a house property be necessarily made in the name of the assessee or can it be in the name of his spouse or any other relative? — Srikanth

Section 54F makes it clear that the assessee should not own more than one house other than the new asset. Even though you own another house other than the house that you are to purchase or construct and in respect of which you propose to claim exemption, the exemption u/s 54F can be claimed.

With regards to reinvestment in a new house property in the name of assessee’s spouse or relative, you may note that there is no express provision in the Act to permit such reinvestment.

However, the Madras High Court has said that when the reinvestment is in the name of the wife, the exemption cannot be denied, particularly when the income from the property is assessed in the name of the husband (as a result of the application of the clubbing provisions) who is claiming the exemption.

My mother died due to kidney failure. I had spent Rs 2 lakh on her treatment. Can I claim any deduction for this amount? — Santosh

Section 80DDB allows a deduction on medical treatment of a disease or an ailment specified by the board for himself or a dependent. The diseases and ailments are prescribed in Rule 11DD and one of them is chronic renal failure. You are eligible for deduction if your mother had chronic renal failure.

(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002)

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