Property in US from sale proceeds in India
Q.I am a government pensioner I have a plot in my home town Batala. The market value of the plot is about Rs 2 crore and its indexed cost would be about Rs 1.50 crore. I will be migrating to USA very soon and want to sell this plot and purchase a house in New York. How can I convert this amount into US dollars without paying long term capital gain tax? My daughter is in New York, can I purchase a house jointly with her.
— Prakash Singh
A.You have stated in the query that you intend to utilise the proceeds of the sale of plot towards the purchase of a residential house in America. However, the purchase of a residential house in America may not enable you to save the tax leviable on the capital gain arising on the sale of the plot. This is in view of a decision of the Income Tax Appellant Tribunal in the case of Lena J. Shah vs. Assistant Commissioner of Income-tax (2006) 6 SOT 721 (ITAT Ahmadabad D. Bench).
It would be advisable to purchase tax-saving bonds by utilising the amount of capital gain of Rs 50,00,000 arising on the sale of plot of land. These bonds have to be purchased within six months from the date of sale of plot of land and have a lock-in period of three years. Since you intend to migrate to USA very soon, the amount on the maturity of the bonds will be deposited in your Non-Resident Ordinary (NRO) Account. Apart from this amount of indexed cost would also available with you in NRO account. The amount so available can be utilised for purchase of a residential house in the USA as foreign exchange regulations permit remittance of $2.5 lakh every year from NRO account for various purposes, including the purchase of a house outside India.
Saving tax on capital gain
Q.If a residential house is purchased from own savings and a plot is sold within one year of purchase of that house, then can the amount of net consideration of sale of plot be adjusted for exemption of LTCG tax and that net amount be invested in fixed deposit by the person who used his savings for purchase of that house? — Dr. Randhir Singh
A.It is possible to seek exemption from the taxability of capital gain arising on the sale of a plot in case a residential house is purchased out of your own savings within one year before the date of sale of the plot. There is no necessity of a live link between the sale proceeds of capital asset and the utilisation thereof for the purchase of a residential house. In this connection, a decision of Delhi High Court may be referred to in the case of Ajit Vaswanit vs. CIT (2001) (117 Taxman 123) (Mag.) in which it has been held that the fact that Section 54 / 54F provide that the amount of capital gain arising on the sale of a residential house or a capital asset other than residential house would not be taxable, if the amount of capital gain or net consideration, as the case may be, is utilized towards the purchase of a residential house one year before the date of sale, itself indicates that there need not be a live link between the accrual of the capital gain or sale proceeds of the plot with the amount paid for purchase of a residential house.
How can I claim share in grandfather’s property?
Q.My grandfather had three properties falling in lal dora of a village in Haryana. He had four sons, including my father. My father and grandfather had expired few years back. At present these three properties are in possession of my youngest uncle. How can I lay claim to my share in these properties, as there are no records of lal dora land in the revenue records. — Jaideep Singh
A.The matter should be settled amicably by involving elder members of the family. If it is not possible to do so, the only alternative is to go to the court and seek the direction of the court for the allocation of your share in the said property. It would be essential for you to produce some evidence before the court that the properties were acquired by your grandfather, who had died without making a Will, and therefore, the rules of intestate succession laid down by Hindu Succession Act, 1956 should be followed by virtue of which you would be one of the legal heirs of your father who has also expired.
Make two Wills
Q.I have a flat in Panchkula in my name and a flat in Zirakpur in joint names with my wife. I have two sons. Now I/we wish to write a Will as under:
- My wife would inherit the Panchkula flat after my death and after my wife this flat should be inherited by my elder son.
- In case of Zirakpur flat, we wish it to be inherited by either of the living spouses and after that this flat be inherited by the younger son.Please advise how the Will should be prepared and also whether two Wills should be prepared. — A.Kumar
A.Your queries are replied hereunder:
- There should be two separate Wills — one made by you and the other one by your wife.
- A Will can be prepared on a sheet of paper expressing the desire of the testator with regard to the inheritance of his properties. This Will should be signed by the testator and his signatures should be attested by two independent signatories clearly stating that the testator has signed the Will in their presence.
Loan interest is part of purchase cost
Q.My son and his wife, both full time executives, had purchased an under construction flat at Gurgaon from original allottee in September, 2010. It was duly transferred in their names by the developer. Almost 80 per cent of the cost of purchase was through an SBI easy home loan. Both of them moved abroad in February, 2011 and are NRIs now. The project was launched in 2007 and the possession was given in August, 2014. My son and his wife did not avail any exemption under Section 80 C or 24, in respect of principal and interest paid towards the repayment of their home loan, although they are filing ITR in India regularly. The house loan was fully paid in March 2015 much before the 20-year tenure. My query is can the interest paid in respect of home loan be added to the cost of purchase for calculating capital gain? — K.D Uppal
A. Interest paid on the amount borrowed for the purchase of the flat shall be treated as part of the actual cost of the capital asset. It has been so held by Hon'ble Karnataka High Court in the case of CIT vs. Sh. S.R. Rai Hariram Hotel Pvt. Ltd. (2010) (188 Taxman 170). It may be added that deduction under Section 80C of the Income Tax Act, 1961 (The Act) is allowable from the total income in respect of repayment of loan raised from specified sources for the purchase or construction of a house, the income of which is taxable under the head "Income from House Property". Similarly, deduction for interest paid on amount borrowed for purchase or construction of a house is allowable as deduction against "Income from House Property".
In the case cited in the query, interest on amount borrowed for purchase of a flat has been paid during the construction period and therefore, no deduction would have been admissible under the Section 80C of the Act. Interest for pre-construction period would have also been allowed as deduction in five equal installments against "Income from House Property", which deduction would not have been admissible also in absence of any "Income from House Property".
What is tax liability on sale of plot?
Q.I had purchased a plot for Rs 9,500 plus stamp duty of Rs 1380 in 1994. I have now sold it for Rs 9,43,000. I have bought a flat under construction-linked payment scheme and 80 per cent of the cost thereof stands already paid in installments. Now only 20 per cent amounting to Rs 6,12,000 is to be paid. The possession is likely to be given by year-end. My queries are:
- How much is the capital gain on the above sale?
- Can I seek IT rebate for the amount to be paid towards remaining 20 per cent of the cost of the flat? If so, under which Section of the Act. — Rumesh Singh
A.Your queries are replied hereunder:
- The amount of capital gain on the basis of indexed cost of Rs 43,016 (cost inflation index for 1994-95 being 259) would work out at Rs 8,99,984 (Rs 9,43,00 - 43,016). The indexed cost has been computed taking into consideration the cost inflation index notified for financial year 2014-15 as cost inflation index for financial year 2015-16 has not been notified so far. The amount of capital gain as computed above would reduce in case the cost-inflation index for financial year 2015-16 is taken into account.
- In the given case you are required to utilise the amount of net consideration i.e. Rs 9,43,000 for the purchase or construction of a residential house so as to save the amount of tax on capital gain arising on the sale of a plot. On the basis of figures given in the query you have already utilised more than the amount of net consideration towards the purchase of the flat and therefore, you would not be liable to pay tax on the amount of capital gain arising on the sale of the plot. No further deduction is allowable in respect of the amount of Rs 6,12,000 being 20 per cent of the balance amount payable towards the purchase of the flat.
