Hi Mihir, I purchased a flat in the year 2012 for 21.55 lakhs and sold the same in 2023 for 33 lakhs. The sale proceeds from the flat was used to repay a home loan. What would be tax liability?

Ans: Hi,

I am presuming that you want to clarify if the capital gain tax be avoided if the reinvestment of old 1BHK flat sale could be mapped against purchase of 2 BHK flat.

The reinvestment conditions specify that you could off-set the capital gain arising out of sale of a residential property by purchasing or constructing a new house within the stipulated timeframes.

If you have bought a ready possession property (new flat) then the timelines are 1 year back or 2 years forward from the date of sale of the old flat.

If you have bought an under construction flat then the timelines are 3 years forward from the date of sale of the old property.

An example would be as follows:

Purchase of 2BHK flat is say June 1, 2022 and date of sale of 1BHK is say May 1, 2023 - You could map the capital gains from 1BHK against the purchase of 2BHK ready possession flat. Similarly, if the purchase of the 2BHK flat was at anytime after May 1, 2023 but within 2 years from this date, then again the exemption would be allowed.

In the case of under construction property, all payments made to the builder after May 1, 2023 would be allowed upto a period of 3 years

Ans: Hi Alok
Buying a plot is not considered as reinvestment and eligibility is on buying or constructing a residential house.

In this case if you construct a house on the plot then you could map the capital gains from the sale of the ancestral house against the cost of construction of the house on the plot.

Also, as you have sold the house in March 2023, you would need to open a Capital Gain Accounts Scheme (CGAS) account with any nationalized bank on or before the due date for filing your tax return. The deposit of the capital gain amount in the CGAS account would be treated as reinvestment for the moment.

You need to note that this CGAS account amount has to be utilized for construction within 3 years from the date of sale of the ancestral house.

In case you are not depositing the amount in CGAS account or reinvesting in any eligible assets before filing tax return (of course before due date) then you would need to pay tax on the capital gain portion

Ans: You plan to invest the entire sale proceeds in constructing a new house on your wife’s plot. Under Section 54 of the Income Tax Act, you can claim an exemption on the capital gains if you reinvest the amount in a new residential property within a specified period. Since the new house is in your wife’s name, ensure that the reinvestment meets the criteria of Section 54 to claim the exemption.
If the full capital gain is reinvested, you can claim exemption and avoid paying tax on the LTCG. However, any unutilized portion of the gain will be taxed.

Important Points to Consider
Joint Ownership and Tax Exemption:
Since the flat is jointly owned, each of you must reinvest your respective share of the capital gain to claim the exemption. As the new property is in your wife's name, you might still be eligible for the exemption if the entire capital gain amount is utilized.

Consult a Certified Financial Planner:
Given the complexities and the involvement of joint ownership and different tax brackets, it's advisable to consult a Certified Financial Planner (CFP) to ensure that the transaction is structured correctly to minimize or eliminate tax liability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in