The Hindu Business Line : Tax exemption on property buy

I am a senior citizen. I have sold a residential house, for Rs 36 lakh. I have out of the sale proceeds cleared a home loan on the said property of Rs 7 lakh. I propose to invest Rs 30 lakh to purchase land and construct a house. Will the repayment of the loan of Rs 7 lakh and investment of Rs 30 lakh in purchase of land and construction of house entitle me to tax exemptions? — Vasu

The amount of Rs 7 lakh repaid by you out of the sale proceeds of the house will not entitle you to a tax exemption. You may, however, be eligible for a deduction under section 80-C on such payment representing the principal of the housing loan. The principal repayment can be claimed under section 80C as a deduction, provided the loan is taken from the bank or a housing finance company or from the employer or certain other specified institutions. It may be noted that the deduction under section 80-C is restricted to a maximum limit of Rs 1 lakh which includes principal repayment of home loan and certain other eligible payments and . The re-investment in purchase of land and construction of a residential house would entitle you to an exemption under section 54. 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 is 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

For the purpose of claiming exemption under sections 54, the amount not invested towards purchase of the new asset within one year before the date of transfer or which is not utilised for the purchase or construction of the new asset before the due date for furnishing the return of income for the relevant assessment year may be deposited before the due date for furnishing the return of income, in any bank or institution in a specified account known as “Capital Gains Account Scheme”.

The proof of investment should be furnished along with the return of income and if this is done, the amount invested will be deemed to have been utilised for the purpose of purchase or construction of the new asset. The amount so invested may be withdrawn for the purpose of purchase or construction of the new asset within the specified time.

If within three years from the date of transfer of the original asset, the money so invested is not utilised for the purpose of investment in the new asset, the same shall be treated as income of the year in which the three-year period from the date of transfer of the original asset expires.

I own a house for which I have taken a housing loan and repay the principal amount along with interest. My parents are living in the house that I own and I stay in a rented house in the same city. Will I be able to get the benefit of exemption u/s.10(13A) in respect of the house rent allowance as I am staying in a rented house and the deduction under sections 24 and 80C in respect of the interest on the housing loan and the principal repayment towards the housing loan simultaneously?

— Sanket

There should be no difficulty on your claiming exemption u/s.10(13A). Section 10(13A) does not place any restriction on the individual claiming an exemption where he already owns a property in the same place or city and where he has also taken a property on rent.

For the purpose of claiming the exemption u/s.10(13A) the requirements are that the individual should be in receipt of house rent allowance and should be actually paying rent.

You may also notice that section 80GG, which allows a deduction in respect of rent paid in the case of a person being an individual or HUF in certain cases and not being in receipt of house rent allowance, does place a restriction on the ownership of a property by such individual, his spouse or minor child or in case of HUF by any member of the family in the same place where such individual ordinarily resides or performs duties of his office or employment or carries on his business or profession.

The absence of a similar condition in section 10(13A) would further go to show that the exemption can be claimed even if this condition is not satisfied. You can also claim for deduction u/s.24 in respect of interest on housing loan and also the deduction u/s.80C in respect of the principal repayment to the housing loan, since there is no embargo on the claim of deduction where the loan related to a property is not occupied by an individual but by the parents .

I sold a plot of land in August 2007 and booked a flat in a society for which I am paying instalments from December 2005 . The possession is likely to be handed over to me in March 2009. Will I be able to get exemption in respect of the long term capital gains on sale of the plot under sections 54 or 54F? Can I utilise thecapital gains against all payments made by me from December 2005 onwards for purchase of the flat or should I use the capital gains only for those payments that have been made one year before the sale of the plot i.e. from August 2006 till the date of possession of the flat? If it were so, do I have to put the unutilised part of the capital gains in a designated capital gains account? — Rohit Kapoor

Normally, when a flat is booked in a society, it should be treated as an agreement for construction of the flat and not as one for purchase of the flat. It can be seen that sections 54 and 54F refer to completion of construction of the flat within three years from the date on which the asset is sold. In your case, since you have sold a plot of land, the section that is relevant for claim of exemption would be section 54F.

As already stated, what is relevant is the completion of the construction within three years.You may, however, note that in your case the capital gains from the sale of the plot arises in the previous year 2007-08 i.e. in assessment year 2008-09. You will have to, therefore, complete the construction within three years from the date of sale of the plot. If you are not able to complete the construction before the due date for filing the return for the assessment year 2008-09, you will have to invest the balance in a capital gains account scheme so that you will qualify for exemption in respect of such investment . The amount invested in such account can be withdrawn and utilised for construction of the flat. The amount of instalments paid by you even beginning from December 2005 will qualify for the exemption.

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