REINVESTING PROCEEDS OF CAPITAL GAINS

[Guest]

Dear Forum Members

I had sold a property in June 2013 and out of the Capital Gains arising out of the sale of the property, I have invested in land and building. As per the Income Tax Act I had to invest ₹ 46 Lakhs either towards an apartment by June 2015 or buy a land and construct a house by June 2016 to avoid paying Capital Gains Tax

I bought a vacant land in September 2015 for ₹ 90 Lakhs (much more than the Capital Gains that I needed to invest as this is the only land I could afford in the fringes of the city) and commenced construction in November 2015. On completing the foundation and plinth I ran out of funds and I could not complete the construction. As per the Income Tax act I need to have completed the house construction by June 2016. But there is no way I can complete the construction by June 2016 as I do not have the necessary funds to complete the construction

I have an Electricity Connection and a certificate from the contractor for completing the foundation and plinth. Is this good enough for Income Tax or would I have to pay Capital Gains tax as I have not completed a house or a dwelling unit

Suggestions from experts will be appreciated

Regards

Srinivasan Krishnan

Chennai

[DR.MARIAPPAN GOVINDARAJAN]

In my view you to have to complete the construction to claim exemption from capital gains tax.

[Guest]

Thank you Mariappan Sir

Thank you Mariappan Sir for your advice. I have another query

I had sold the Plot in Feb 2014, the capital gains of ₹ 45 Lakhs is parked in a Capital Gains account Scheme in an authorized bank. I need to reinvest by Feb 8, 2017 in an residential house (not an apartment as the 2 year time period has expired for buying an apartment)

It is now almost 2 years 10 months since I sold my plot. The query I have is

Can I buy a built old residential house within the next 2 months to claim the capital gains benefits or should I buy a Plot and construct a house within the next 2 months to claim the capital gains benefits

Your advice will be greatly appreciated

AI Summary

Reinvestment of capital gains: complete construction or acquire a residential property within the prescribed period to retain tax exemption. Reinvestment of capital gains requires either purchase of a residential property within the acquisition period or completion of construction on purchased land within the construction period to claim exemption. Partial works and ancillary evidence such as electricity connection or foundation/plinth do not substitute for completed construction. Parking proceeds in a capital gains account scheme preserves the funds pending reinvestment, but final investment must be made by the prescribed deadline; otherwise the exemption is not available and capital gains tax becomes payable.