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Retired couple seeks advice on capital gains tax on commercial real estate sale

Samkit Maniar |174 Answers |Ask -Follow

Tax Expert - Answered on Jul 25, 2024

CA Samkit Maniar has eight years of experience in income tax, mergers and acquisitions and estate planning.
He has graduated from Mumbai’s N M College of Commerce and Economics and has completed his CA from The Institute of Chartered Accountants of India."... more

Question by Avion on Jul 16, 2024Hindi

Hi Samkit, I'm a retired person, 66 years old. Before retirement, I had invested Rs.93.5 lakhs in a commercial real estate in Navi Mumbi in Feb.2017 and registered the property jointly with my wife on 50/50 basis. The value of the property as determined by stamp duty registrar at that time was Rs.73.41 lakhs. The expenses on stamp duty, registration and brokerage was Rs.7.53 lakhs and improvement expenditure of Rs.4 lakhs. So total cost of purchase worked out to Rs.1.09 crores. I sold this property in Feb.2024, exactly after 7 years, for Rs.1.1 crore. Market value (for stamp duty purpose) on this date was Rs.89.89 lakhs. While filing my ITR2 in AY 2024-25, I had split all the above values by 2 and 50% was shown in my ITR2 and the remaining 50% was shown in my wife's ITR2 under CG for showing the capital gain. The system has calculated and shown the capital gain as minus Rs.31.24, i.e. Rs.-15.62 in each of our ITR2. The system has also automatically adjusted my LTCG arising out of other share transactions during the FY. The system allows the remaining loss to be carried forward to next year under CFL. My questions are: (1) Can we both go ahead and finalise & submit the ITR2 as shown above? (2) Can we use the losses carried forward during the next AY to set off our incomes arising out of share market transactions? Thank you so much in advance for your valuable time and advice.

Ans: Yes, seems correct treatment done. You can go ahead with submitting your returns respectively.

Please note that Long term losses can only be set off against long term gains, if that's the case then you can.

Please consult your CA before moving ahead.

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Question by Swadhin - Nov 17, 2022Hindi

I am a senior citizen retired pensioner. I had intention to sell my both properties located in one town and to invest in one property in another town where I wanted to settle in my retired life. I wanted that the sale proceeds of my two properties should be almost same as the purchase value of a single property in another town to settle there. I had bought a property in 2015 at Rs 40 lakh in my single name and sold in Feb 2022 at Rs 52 lakh. The buyer deducted 1% TDS and filled in form 26QB and I got form 16(B) from buyer and details of TDS are seen reflected in my Form-26AS. Thereafter, my 2nd property that I had bought @Rs 7.3 lakh 20 years back, was attempted to dispose, but did not materialise till now. Anyway, I bought a 5-yr-old jointly owned property from a couple at Rs 80 lakh in June 2022 and deducted 1% TDS (@0.5% from each owner), filled in Form 26QB and provided form 16(B) to the sellers. So, I invested the sale proceeds of my 1st house 'within a year' of its disposal, in buying a house from Long Term Capital Gain point of view. My IT Return for AY 2022-23 was filed in July 2022 and it got approved. The 1% TDS deducted by buyer on my 1st property sale got refunded/ adjusted. I am still trying to sell my 2nd property 'within one year' of buying the June, 2022 property. I want to do this to take benefit of Long Term Capital Gain Tax. I want to know whether I am going to get the IT benefit by selling my 2nd property 'within one year' of purchase of my June 2022 property ? I am more eager to know how sale of 1st property in financial year 2021-22 (Feb.'22), purchase of a property in FY 2022-23 (June'22) and again sale (proposed) of 2nd property, (all within 2 years from LTCG point of view) are shown in my next IT Return (AY2023-24). I am eager to hear from you, Sir!

Ans: As you must be aware, if person wants save tax on capital gain, person should acquire another residential house within a period of three years from the date of transfer of the old house or should construct a residential house, within a period of one year before or two years after the date of transfer of old house.

With effect from Assessment Year 2021-22, the benefit in respect of investment made in two residential house properties is available. The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long-term capital gains does not exceed Rs 2 crore.

If assessee exercisesoption, he shall not be entitled to exercise this option again for the same or any other assessment year.

Benefit will be lower of following:

Amount of capital gains arising on transfer of residential house; or
Amount invested in purchase/construction of new residential house property

If till the date of filing the return of income, the capital gain arising on transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains Deposit Accounts Scheme, 1988.

So in your case, if you satisfy all the prescribed conditions (including acquiring new property within 3 years, depositing unutilised amount in capital gain deposit account and disclosure is made regarding same in ITR of AY 2022-23 & AY 2023-24); you will get IT benefit.

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