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I sold one of my inherited houses in February 2019. After adjusting for the indexation cost, I invested the capital gains in another residential property, a ready-to-move builder apartment, on 8 July 2019 and received possession of the same in November 2019. In October 2019, I filed my ITR for FY 2018-19 wherein I declared the date and cost of the property sold and that of the newly acquired one. I also claimed the benefits of LTCG under section 54. The date of the newly acquired property, as given in the ITR, is 8 July 2019. Now, due to some reasons, I want to sell this apartment and immediately invest the proceeds in another residential plot or a built-up house.
My queries are:
1. If I sell my apartment now, will my LTCG claim under section 54 in AY2019 be reversed? Will I have to pay penalty if I sell the property within three years of acquiring it or possession? I have a valid reason for trying to sell it as the property is not of good standards and the builder is not facilitating its registry.
2. Since the LTCG period on residential property has now been reduced to 24 months, will this not apply to my acquired property in 2019—even if I reinvest in another residential property immediately?
3. Whatever the period of holding—24 months or 36 months, is it calculated from date of purchase or booking or actual date of possession or from the start of a financial year. In my case, the date of purchase is 8 July 2019, the actual date of possession is end of November 2019 but in ITR the date of possession mentioned is 8 July 2019 and the FY date will be 1 April 2019.
-Namewithheld as per request
As per Section 54 of the Income-tax Act, 1961 (the Act), there are no prescribed provisions whereby the exemption claimed under this section is revoked if the acquired new property is sold within a particular period of time.
Accordingly, irrespective of when you sell the new property acquired by you in 2019, the exemption claimed by you in FY 2018-19 shall not be revoked. Further, there shall not be any penalty. However, where the new property is sold within a period of three years from the date of its acquisition, the cost of this new property for the purpose of computing capital gains on its sale, shall be reduced by the capital gains claimed as exempt earlier.
Further, where a residential property is held by an individual for more than 24 months immediately preceding the date of transfer, any capital gain arising from transfer of such property is considered as Long Term Capital Gains (LTCG).
Else the gain arising from transfer of such property shall be considered as Short Term Capital Gains (STCG).
There are no specific provisions under the Act, which specify what should be considered as the date of acquisition. At the same time there are various conflicting judicial precedents in this regard as well.
Based on the general principles and precedents, there is a view that the date of acquisition may be considered as the date on which you have received an unfettered right/ ownership of the property and not from the date of booking of the property.
In case such right is received on the date of possession of the property in November 2019, the holding period of 24 months may be considered from such date of possession. However, this would depend on the specific facts and documentation in your case. Any impact of the date of acquisition on the earlier exemption claimed under Section 54, has not been examined.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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