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Since 1st March, 1999
 
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Q&A

Property basics

A person sold his residential property for Rs 20 lakh. Now he wants to buy a residential property for Rs 15 lakh and purchase furniture with the remaining Rs 5 lakh. Will the person get benefit under Section 54 on the entire sum of Rs 20 lakh or on Rs 15 lakh?
Kamal Bhattacharyya, Calcutta
 
your query you have not mentioned about the purchase price of the property and, hence, the capital gains amount. The sale value of the property is Rs 20 lakh, but what is the cost of acquisition and what is the capital gain? Exemption under Section 54 is available on the capital gains amount. Hence, deduction on the Rs 5 lakh spent on furniture will not be available under the said section of the income tax act. Benefits under Section 54 will be restricted only to the amount invested in a residential property. According to the provisions, the investment of the proceeds should be in another residential immovable property which in this case is Rs 15 lakh. The cost of furniture is not considered as part of investment in the immovable property. Hence, benefit will be allowed only to the extent of Rs 15 lakh.
 
 
 
Capital gains query
I had booked a flat in lottery on application in August 2007. The same allotment letter was transferred to me in September 2007. I had paid the total amount outstanding in the allotment letter in September itself and the allotment letter was transferred in my name accordingly. Now, the possession of flat was given in August 2010 and subsequently registration was done in September in my name. If I sell the flat now, the capital gains will be short term or long term?
Pankaj Bothra, Calcutta
 
The capital gains will be considered as short term as the possession of the property was in August 2010. You became the owner of the property only after the transfer of the title deed of the property, which is in September 2010. Hence, the sale of the property now will attract short-term capital gains tax. However, in a recent judgement by ITAT (New Delhi) in the case of Praveen Gupta vs ACIT, it was held that the allotment date of flat by the builder is the date from which indexation is to be computed for the cost of acquisition.
 
 
 
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