Income Tax Act Provisions
a) Section 54: In case the asset transferred is a long term capital asset being a residential house, and if out of the capital gains, a new residential house is constructed within 3 years, or purchased 1 year before or 2 years after the date of transfer, then exemption on the Long Term Capital Gain (LTCG) is available on the amount of investment in the new asset to the extent of the capital gains. It may be noted that the amount of capital gains not appropriated towards purchase or construction may be deposited in the Capital Gains Account Scheme of a public sector bank before the due date of filing of Income Tax Return. This amount should subsequently be used for purchase or construction of a new house within 3 years.
(b) Section 54F: When the asset transferred is a long term capital asset other than a residential house, and if out of the consideration, investment in purchase or construction of a residential house is made within the specified time as in sec. 54, then exemption from the capital gains will be available as:
(i) If cost of new asset is greater than the net consideration received, the entire capital gain is exempt.
(ii) Otherwise, exemption = Capital Gains x Cost of new asset/Net consideration.
It may be noted that this exemption is not available, if on the date of transfer, the assessee owns any house other than the new asset.
When the owner sells property and if the owner invests the gain amount in buying new property, then he need not pay any income tax at all. Further, if he wants to keep the money for investment in another residential property, then the only option available for him is to open a separate bank account under the capital gain account scheme. You must consult a property lawyer who can guide you in such instances about saving your capital gains arising from selling the West Bengal co-operative housing property.
How to Save Long-Term Capital Gains?
The capital gain arising to the owner will be treated as long-term capital gain and it will be adjusted as per the Cost Inflation Index. Income tax on the sale price minus the indexed cost of the property has to be paid by the owner on such long term or short term capital gains.
Further, if the owner of the land is selling the property and not receiving any money but say he is receiving only certain flats in lieu of the land cost then there would be no capital gain. However, if he receives any money then the same should be accounted for as capital gain. Well, innumerable options are available for saving long-term capital gains with respect to house property. The owner can invest in capital gain bonds up to Rs 50 lakh or he can buy a property within one year before the date of sale or two years after the date of sale or buy land and construct house within three years after the date of sale. If not he has to pay 20% tax. The time limit for investment in capital gain bonds is six months from the date of sale of the asset. Also, the limit is Rs 50 lakh.
Further, you must remember that the long-term capital gain for the real estate sector will be when you hold the property for more than 36 months. If, however, you hold the property for less than 36 months, then it will be short-term capital gains and there is no way to save tax on short-term capital gain. You need to consult the best property lawyers in West Bengal and Kolkata to guide you better in such cases.
Saving Capital Gains in Co-operative Housing Society
Similarly, allotment of a flat or a house by a cooperative society, of which the assessee is the member, is also treated as construction of the house. Further, in such cases, the assessee shall be entitled to claim exemption in respect of capital gains even though the construction is not completed within the statutory time limit [Sashi Varma v CIT (1997) 224 ITR 106 (MP)]. Delhi High Court has applied the same analogy where the assessee made substantial payment within the prescribed time and thus acquired substantial domain over the property, although the builder failed to hand over the possession within the stipulated period [CIT v R.C. Sood (2000) 108 Taxman 227 (Del)].
In Apsara Co-op. Hsg. Society Ltd. 204 ITE 662 (Cal. ) it was held that:
Since the Society has constructed additional area on the existing building and allotted to the existing member by taking certain construction deposit and certain donation to the Common Amenity Fund on the principles of mutuality, there will not be tax liability.
For more information and advice you must contact one of the best housing society lawyers in Kolkata who has experience in taxation matters. For more information, you may book a session here by paying through UPI or contact us here for more details.