Query on Capital Gains-Trf Under Property Act

Hi Shefali,

The "transfer" of property as defined in Section 2(47) was effectedin F Y 2007-08 upon the registration of the sale deed. The fact thatyour client hasn't yet received the entire sale consideration andwill be receiving it in instalments over a period of 3 years wouldnot entitle him to defer paying tax on this CG transaction till thehe realizes his dues in full.Just as in an ordinary revenue transaction we don't wait till therealization of the bill to recognize revenue on it, CG too arises assoon as the transfer of an asset gets effected. How and when thesale consideration will be discharged is a matter between the sellerand the buyer; the Income Tax law has nothing to do with it.So the CG will have to be paid taking into account the entire saleconsideration in A Y 2008-09 itself. But to avail of the benefit ofSection 54, etc you can borrow money to meet the deficit. Thoseexemption sections nowhere state that the money to be invested hasto come out of the sale proceeds of the capital asset.Regarding tax planning, you can put the money in Section 54EC bonds.But I think buying a house will be a better option. There is the ABC-123 rule—-a new house should have been Acquired one year before thedate of transfer; or it should have been Bought two years after thedate of transfer; or a new house should have been Constructed notlater than 3 years from the date of transfer of the original house.You can have him put the money in the CAGS account with a bank tillhe finds a suitable house to buy. Of course, since he hasn't yet gotall the money, he will have to arrange the remainder from othersources. The exemption u/s 54 will be restricted to the amount youput in the CAGS before the due date of filing the ITR. There's alock-in period of 3 years for the new house.

Thanks,

Sanjeev Bedi

--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=hOnmCECUIq9WSe54gkyr0h3ru8-yV-DA8SL3GGiW9fW4ZMNAWi85wQU_VQepsUUkPSHDe47tTCT-tWFl8BPD8biDF8gE6giixCd40Iw, Shefali Bajpai wrote:>> X, an Individual sold out his ancestral property during the FY2007-08. The sale was also registered during the year. However, thesale proceed as mentioned in the Sale Deed is to be received by X inthree Annual installments starting from FY 2007-08.> In such a case will the date of sale deed be considered as dateof transfer even when only 1/3 rd Sale proceed is received duringthe year.>> Further, considering the complete Sale Proceed as mentioned inthe Sale deed the Capital Gain Liability is huge. In that case whatkind of Capital Gain Tax Planning be done by X.>>> Regards,> Shefali.>>