Is exemption under Section 54F of the Act allowed?

S.C. Vasudeva.

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Q.In reply to a query earlier you had advised that in case of sale of capital asset other than a residential house, an assessee who intends to avail exemption for the chargeability of tax on capital gain so arising is required to deposit full consideration of the sale of such capital asset in a bank under capital gain scheme account. It can be utilised in purchasing a self-financing scheme flat being built by a housing board or any such authority with the condition that the flat should be handed over within three years from the date of the sale of the plots. You had also pointed out that Circular no: 471 (dated October 15, 1986) and Circular no. 667 (dated October 18, 1993) have clarified that the allotment of a residential flat on self-financing scheme is akin to the construction of the residential house is taken up on behalf of the allottee.

I need few clarifications on this issue. The construction is being done by Improvement Trust in Ludhiana i.e. other than the party himself. And the flat has not been handed over within three years as promised. The party has paid the entire consideration of the agreed amount within three years, which is more than the full consideration received on the sale of plot. As the construction is not complete the Completion Certificate cannot be procured. Will the party be required to pay capital gain tax or it shall be taken as the flat is purchased within the stipulated period to exempt the party from paying any tax? At this stage do you suggest any other way to get exemption in paying tax, as the party's intentions are very much clear and no fault on his part. — S. Narain

A.Your queries are replied hereunder: 

(i) If the assessee pays full consideration or substantial portion of it in terms of the purchase agreement within the period of three years, the exemption under Section 54F of the Act would be available even if the possession is handed over after the stipulated period or the sale deed is registered later on. In this connection your kind attention is invited to the decision of Bombay High Court in the case of Commissioner of Income-tax vs. Mrs. Lilla J. B. Vadia (216 ITR 376). 

(ii) There would not be any requirement of completion certificate in view of the above decision. 

(iii) Other questions raised by you in the query would not arise in view of the legal position explained hereinabove.  

Rebate on property in joint names

Q.I have purchased a 100 sq. yard plot in Zirakpur in November 2016 jointly with my wife for constructions of a new house in 2017. I have paid Rs 64,000 as Stamp Duty and Rs 8,000 as Registration fee (total expenditure for Rs 72,000). Can I show 50 per cent share in 80C for tax deduction for assessment year 2017-18.  — Ajit Kumar

A. It is presumed that the plot purchased in Zirakpur as well as the construction cost on such plot during 2017 would be met by you and your wife in equal share. Further, your wife has her sources of income out of which such costs shall be met. The reply  to your query is based on this presumption.

On the basis of the above facts you should be able to get a deduction to the extent of 50 per cent of Rs 72,000 against the total income provided the house is in joint names and construction thereof has been completed in the financial year 2017 i.e. within April 2016 and March 2017.  In such a case half share of income from property shall be included in the total income of both of you for the year 2017-18. You will be entitled to claim  half of Rs 72,000 as a deduction under Section 80C of the Income Tax Act 1961 (The Act) within the specified limit of Rs 1,50,000 against the total income in which such income is included.

Am I eligible for tax rebate?

Q.I have availed a loan for the purchase of a residential house in which I am the main applicant and my wife is a joint applicant. For auspicious reasons the property has been registered in my wife's name and she is recognised as owner for purpose of municipal taxes. My wife is a housewife and does not have any source of income. In this scenario am I eligible to claim the repayment of principal (80C) and interest paid (Section 24) towards the loan for purchase of house towards my income tax exemption? 

The loan repayment letters for principal and interest is issued by the bank in my name only as I am the first applicant. — Dhiraj Kumar

A. A deduction under Section 80C of the Act towards the repayment of loan for the construction of residential house is allowable to a person who is the owner of a house. It is presumed that the house property was constructed with your funds but has been registered in the name of your wife on account of auspicious reasons. I hope that a declaration has been made in your tax return that the property is owned by you and your wife is only a Benami and income from such house property has been reflected in your tax return. In such a case you would be entitled to claim deduction for the amount paid towards the repayment of the loan raised for the acquisition of the house within the specified limit of Rs 1,50,000. A deduction for payment of interest stands on the same footing and would be allowable against income from house property, if such income is assessable as your income. 

Do I need to amend the Will?

Q.I have prepared a Will for my property and assets in favour of my son who is living with me. According to the Will my son will inherit my house and savings in my bank account and savings in the nature of shares and bonds. The above Will had been prepared and registered by me in 2004. Is such a Will still valid or invalid after the amended provisions of Section 6 of Hindu Succession Act 1956. Do I need to revise/amend this Will? —Harbans lal

A. Section 6 of the Hindu Succession Act 1956 as amended deals with the devolution of interest in co-parcenery property which is also sometimes referred to as joint family property. It has no relation with the right of a person to make a Will in respect of his self- acquired property. I presume that the property and assets referred to in your query are in the nature of self-acquired property and are not in the nature of a joint family property. In view thereof, there should not be any necessity of changing the Will executed in 2004.

In case you otherwise intend to change your earlier Will, it will be better to incorporate a clause in the new Will stating that all earlier wills/codicils will have no effect after the execution of the latest Will.

Rebate on EMI for under-construction property

Q.I have purchased an under-construction property in Mohali. I have availed home loan (80 per cent of the total value) for the same and instalment are being paid as and when developer demands (construction-linked plan). I want to know whether I can avail exemption of income tax on the interest component being paid by me. —Dr Alkesh

A. It is presumed that property referred in the query is a residential house.  The reply to your query is based on the said presumption. Deduction for the amount of interest paid for purchase or construction of a property is allowable in case income from such property is assessable under head 'income from house property'. Interest paid during the construction period is allowable in five instalments beginning from the year in which the property is constructed. Therefore, a deduction in respect of the interest paid for the period up to which the possession of the property is handed over to you, would be allowable in five equal instalments beginning from the year in which the possession is handed over to you.

Does an NRI pay tax on sale proceeds remitted in foreign account?

Q.I am an NRI living abroad for the past 20 years. I intend buying three properties in  Gurugram. 

My queries are: 

1. Suppose I buy three properties (2 plots and a residential house) with a draft from overseas each worth Rs 2 / 3 crore  in the city, then do I need to file Wealth Tax return in India annually? 

If yes, then how much do I need to pay annually for three properties worth Rs 6 crore-Rs 9 crore? 

2. When I sell the above mentioned properties within one year or after three years, then can I take the complete sale proceeds back to the country where I am living without paying any tax in India or will I need to pay tax before remitting the amount abroad? — Balbir singh

A. Your queries are replied hereunder: 

1. At present the Wealth Act 1957 is not in operation in India. Therefore, no Wealth Tax is chargeable in respect of the property purchased in India by a resident or non-resident Indian.  

2. A capital asset, if held for a period of less than three years would be a short term capital asset and any profit arising on sale thereof shall be taxable as short-term capital gain. Short-term capital gain (except that arising on sale of equity shares) is assessable to tax at the normal slab rates applicable to an individual. A capital asset which is held for more than three years would be a long-term capital asset and any profit arising on the sale thereof would be a long-term capital gain, taxable @ 20 per cent plus education cess @ 3 per cent. 

3. It will be possible for you to remit the sale proceeds of various properties which were purchased in India through banking channels. This is on account of the fact that purchase of such properties has been made by remittance in foreign exchange. You will, however, be liable to pay tax on the profit arising on the sale of such properties. This implies that you would be able to remit the sale proceed less tax chargeable on gain arising on sale of such properties.