A residential plot of land in Bengaluru was bought by a non-resident Indian in FY2005-06 from USD funds of $10,000 equivalent to ₹4.2 lakh @42, including purchase expenses, from his NRE Account. The residential land was sold in FY2019-20 for ₹19 lakh, after deducting the exclusive sale expenses from the consideration of ₹20 lakh. The current TT Selling outward remittance rate at the same bank is over ₹70, resulting in a substantial foreign exchange rate difference. Kindly advise how to adjust this foreign exchange loss in computing LTCG? In the case of shares, bonds, etc, forex adjustment is allowed.
V Thangamani
As per the provisions of Section 48 of the Income Tax Act, foreign exchange difference is not allowed to be adjusted in computation of long-term capital gains (LTCG) arising to a non-resident assessee, in case the capital asset transferred is other than shares or debentures of an Indian company. As rightly stated by you, such option is only available for capital gains arising to a non-resident from the transfer of a capital asset, being shares or debentures of an Indian company.
While computing LTCG from transfer of a long-term capital asset (other than capital gain arising to a non-resident from the transfer of shares or debentures in an Indian company referred above), benefit of ‘indexed cost of acquisition’ and ‘indexed cost of any improvement’ (if any) shall be considered (ie, inflating the cost based on inflation index) while computing the LTCG.
I am expecting long-term capital gains of close to ₹50 lakh on sale of open land in April 2020. Please enlighten whether I can invest the LTCG amount in another residential property and register the same on my daughter’s name? If I invest the LTCG amount as a joint holder of the property, am I eligible for tax exemption?
As per the provisions of Section 54F of the I-T Act, exemption from taxation of LTCG arising on transfer of capital asset (other than a residential house) can be claimed subject to fulfilment of certain conditions, some of which are mentioned below:
- The assessee is required to purchase/construct one residential house in India (referred to as ‘other property’). Purchase of such other property should have taken place within one year before or within two years after transfer of the original asset. In case of construction, the other property should be completed within three years after transfer of the original asset.
- Exemption is not allowed if the assessee owns more than one residential house (apart from the other property) on the date of transfer/purchase of a residential house (apart from the other property) or purchase or construction of a residential house (other than other property) within a period of one year or three years after the date of transfer of the original asset.
We understand you plan to buy a residential property to claim exemption u/s 54F in respect of LTCG arising on sale of land. We also understand that you wish to register the new asset in your and your daughter’s name as joint holders.
The question that whether the deduction u/s 54F should to be restricted, or not, to the share of ownership in case of jointly owned property has not been addressed by the I-T Act. Therefore, we may have to rely on judicial precedents for the same.
It appears that the predominant judicial view is that for the purposes of claiming exemption, the new residential house need not be purchased by the assessee in his/her own name; nor it is necessary that it should be purchased exclusively in the name of the assessee.
You may, accordingly, take a view that such an investment should be entitled to benefit u/s 54 of the I-T Act.
However, please note that this position may be litigated by tax authorities, especially at lower levels.
The writer is a practising chartered accountant.
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