I sold a residential plot that was purchased in 1996 in 2015. I am using the gain proceeds for construction on a plot that was purchased in 2013.

My query is whether the cost of construction that is incurred now and the cost of acquiring this plot in 2013 will be taken for calculating my capital gains.

In the event of the cost for the plot not being factored in, is it possible to consider the loan amount that was taken for purchase of the said plot in 2013 and foreclosed now out of the sale proceeds, in computing my capital gains ?

Please advise.

Jayanthi R

I understand from your query that you have sold a plot of land in 2015 (referred to as ‘original asset’), the sale proceeds of which are being used for construction of one residential house property on a plot of land which was purchased in 2013.

Subject to certain specified conditions of Section 54F of the income-tax Act, 1961 (‘the Act’), an individual is eligible for claiming exemption of the capital gains arising on sale of original asset, provided the net proceeds from the sale of the original asset are used for construction of residential house property (‘new asset’) which is completed within three years from the date of sale of the original asset.

In your case, you would be eligible for claiming exemption (in proportion to the cost of new asset and the net sale proceeds of original asset) under Section 54F of the Act, wherein the cost of the new asset shall only be the construction cost.

The cost of plot purchased in 2013 shall not be considered.

Even the foreclosure of the outstanding loan amount against the plot of land purchased in 2013 shall not be considered for claiming exemption from capital gains.

Further, it is to be noted that where the net sale proceeds are not so invested, the benefit of Section 54F shall be available if the unutilised sale proceeds are deposited under the capital gains account scheme (as notified by the Centre) before the date of filing of return of income for the year in which the original asset is sold.

The amount so deposited in the capital gains account scheme should be utilised for construction of property within the specified time of three years from date of sale of the original asset.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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