Extension fee for residential plot part of acquisition cost

SC Vasudeva

Q. I and my wife are senior citizens. We were allotted a residential plot in joint names in an urban estate, Punjab, by PUDA in 1996 for amount A which was paid in instalments till March 2006. Since the possession of plot could not be handed over, they allotted an alternative plot for the same amount in 2009. We sold this plot in April 2019 for amount B. The conveyance deed with PUDA was executed in April 2019 just before the sale. Clarify on the following points:

(1) Whether the sale in April 2019 would result in LTCG or STCG? From which date, the period of three years for LTCG would be applicable?

(2) Whether the sale proceeds would belong equally to me and my wife. We both are filing I-T returns. The questions that follow are based on the assumption that the transaction resulted in LTCG.

(3) How to calculate indexed cost of acquisition in this case?

(4) Whether the amounts paid yearly since 2011 as extension fee would be included in the cost of acquisition? lf so, how to calculate their indexed values?

(5) What other costs can be included in the cost of acquisition?

(6) Whether the whole sale proceeds have to be deposited in individual accounts of self and wife in capital gains account scheme or only the amount of LTCG is to be deposited to get exemption from payment of capital gains tax if a property is intended to be purchased? Whether the property to be purchased should be a built-up house/flat only, or could it be residential plot also? During how much time such a property should be purchased? From which time this period is to be counted?

(7) Whether the interest earned in the above account can be withdrawn?

(8) If one fails to buy a property in the given time, what would be tax liability? 

(9) Whether one can withdraw the amount even before the expiry of the stipulated period without purchasing a new property? If so, what would be the tax liability? 

(10)  lf the sale proceeds are divided equally between me and my wife and deposited individually in capital gains tax account, whether each can buy an independent flat/house/land with the name of the other added as a joint buyer? 

(11)  Whether each one of us can buy bonds of NHAI or REC for Rs 50 lakh each and then deposit the remaining amount (LTCG) in capital gains account scheme in individual names to be utilised for purchase of flat/house/land?

(12)   For AY 202O-21, which ITR form is to filed for showing this transaction?

(13) How to account for 1% amount deducted by purchaser and deposited against PANs of each of us? Can this be adjusted against tax payable on other incomes? Will the department pay interest on refund due? If so, from which date and at what rate?

(14)  Within how much time of receipt of final payment can we deposit the LTCG in LTCG Account Scheme? Can we keep the amount for such a time in FDRs?

(15)  Within how much time a flat etc can be purchased if we don’t deposit the amount in LTCG Account? — Balwinder Singh

A. (a) The period of holding in respect of the plot of land would be calculated from the date of allotment of the plot and therefore, the profit arising on the plot sale in April 2019 would be treated as a long-term capital gain.

(b) The sale proceeds should be equally divided between you and your wife provided the investment has been made equally by both of you. In case the investment was not made in equal proportion, the sale proceeds should be divided between both of you in the ratio of investment made by you and your wife.

(c) The cost inflation index is published by the government and would be available in any ready-reckoner applicable for AY2020-21. The instalments paid for the plot acquisition will be indexed on the basis of cost inflation index applicable for the year of payment. The aggregate of indexed cost shall be deducted from the sale price so as to compute he amount of LTCG.

(d) Extension fee paid by you would be considered as a cost of improvement and will have the same status as the cost of acquisition. The indexed cost of amount paid would be added to the cost of acquisition. However, the cost inflation index applicable to such extension cost would be the year in which the payment was made.

(e) The cost of acquisition would include the amount paid towards the purchase of the plot and stamp duty.

(f) The sale proceeds will have to be deposited under the capital gain scheme in case the intention is to purchase or construct a residential house within the specified period. The amount can be utilised towards purchase of a built-up house or flat. It cannot be a residential plot. A residential house can be purchased within one year before or two years after the date of sale. The construction of a residential house can be within three years after the date of sale.  The effective date of transfer of plot shall be the date on which the sale consideration is received and possession of the plot is handed over to the buyer.

(g) A withdrawal from capital gain scheme account is allowed only for the purchase or construction of a residential house.

(h) In case the amount is not utilised for the purchase or construction of a residential house within the given period, the amount would be taxable in the year in which the period of three years expires.

(i)  Withdrawal from the capital gain scheme account is allowed only for the purchase or construction of a residential house.

(j)  Each one of you can utilise the amount of sale consideration allocable to you and your wife towards the purchase or construction of a  house or flat. A residential house or flat will have to be purchased in the name of the person in whose name the capital gain is assessable.

(k) Each one of you can buy tax-saving bonds to the extent of Rs 50 lakh within six months of the date of sale and deposit the remaining amount under the capital gain scheme.

(l)  ITR form for AY2020-21 shall be available somewhere in April-May 2020.  It is, therefore, not possible to suggest the ITR No. applicable for the said year. 

(m)  In case the sale proceeds are utilised for the purchase or construction of a residential house within the specified period, the TDS by the buyer shall be adjusted against the tax payable on the other income earned by the assessee. Interest is payable on the refund of TDS @0.5% per month or part of the month from the first day of assessment year to the date on which refund is granted. The amount under the capital gain scheme shall have to be deposited before the date of filing the return for AY2020-21.

(n) The amount can be kept in FDRs till the date by which the amount is required to be deposited under the capital gain scheme.

(o) The applicable period for the purchase of a flat remains the same as mentioned above. However, if the amount is not deposited under the capital gain scheme, you may not be able to  get the benefit of exemption under Section 54F.  In case the amount of sale consideration is utilised for purchase/construction of a residential house before the due date of filing the return, the requirement of depositing the sale consideration under capital gain scheme would not apply.