Capital gains Tax on sale of Residence-Reg.

[Reddy S.R.]

Dear sir,

I sold my residence after using it for 10 years on 29/11/2009,resulting in cap.gains of Rs 98Lakhs.I tried to buy another house to avail exemption of Cap.gains.Since I didn't get a suitable residence till March,2009,I deposited the sum in designated Bank under Cap gains a/c Scheme on 25/03/2009.I entered into a construction agreement with a builder in a multistory apartment with UDS of Land,by the end of March 2009.The cost of New asset being 90Lakhs only,Can I use the balance amount for interior woodwork,electricals,modular kitchen etc and avail full cap.gains exemption?(The builder declined to do these internal works even for a seperate payment)

II.I propose to complete the Apartment by May,2012 and let it out since I am staying with my wife in my Son's house,being a retired person.If so,Is the time limit and the purpose served correctly for availing full Cap.gains exemption?

III.Can I withdraw the Interest amount after paying I.T on it from the amount standing in my credit of Cap.Gains a/c scheme? and

IV.Can I withdraw without any authority from I.T.Dept.,of Exess amount deposited in Cap.Gains account due to calculation error,after completion of construction of my Residence.

Thanking you and awaiting your valuable opinion.

Reddy,S.R.

[Deepak Nagori]

Dear Mr Reddy,

1. Section 54 says that capital gains are to be invested in a residential house. However, it does not make it clear whether gains can be invested in furnished or unfurnished house. In my opinion, interior woodwork, electricals and modular kitchen would be bare minimum work required to make the house habitable. However, you should not account for the same as furniture but account for the same as expenditure on building only. Then you may claim full exemption of Rs. 98 lacs u/s 54 .

2. From the dates you have given, it looks like you have sold the house on 29/11/2008 and not 29/11/2009. Then as per the section, the new house should have been constructed within 3 years, i.e., by 29/11/2011, which has already expired. Hence in my opinion, you will be entitled for exemption only for the amount spent within these three years. Refer case law CIT vs Shahzada Begum (1988) 173 ITR 397 (AP).

3 & 4. You can withdraw the money in the CGAS any day after 29/11/2011. Yes the interest amount shall be taxable.

Regards,

CA Deepak Nagori

AI Summary

Capital gains exemption for residential reinvestment covers capitalised construction and fit out costs, subject to the statutory time limit. Exemption for capital gains on sale of a residence requires reinvestment in acquisition or construction of a new residence; interior fit outs that are capitalised to the building can be included as qualifying expenditure. Only amounts actually invested in the new residence within the statutory three year period from the date of transfer qualify for the exemption. Amounts deposited in the Capital Gains Account Scheme are withdrawable after the relevant period or on completion, and interest earned in that account is taxable.