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Tax queries: Sections 54, 54F deductions available only for LTCG

Dilip Lakhani Senior Chartered Accountant, answers queries from our readers on income tax and other levies.

May 03, 2019, 12.38 PM IST
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Every week, an expert selected by ET answers queries from our readers on income tax and other levies.
Dilip Lakhani Senior Chartered Accountant, answers queries from our readers on income tax and other levies.

My father constructed a house in Jharkhand in 2000 for which the total cost incurred was Rs 15 lakh. I had booked a flat in Mumbai at the pre-launch stage five years ago. I took a home loan of Rs 30 lakh. The total cost of the property is Rs 43.5 lakh. I got possession on April 20. Now, we want to sell both the properties and buy a flat in Mumbai for Rs 1.5 crore. We expect Rs 50 lakh from the sale of the Jharkhand property and around Rs 60 lakh from the sale of the Mumbai flat. The plan is to use the proceeds from selling the Mumbai flat to repay the home loan and use the balance money to book a new flat. Also, the proceeds from the sale of Jharkhand house will also be used to funding the purchase of the proposed flat in Mumbai. How can we save on long term capital gain tax in this transaction and what is the time duration within which these transactions should be completed? –ABHIJEET SINHA

On sale of the property situated in Jharkhand your father will be subjected to long-term capital gains tax. He will be eligible to claim deduction under Section 54 of the Income Tax Act 1961 provided he acquires co-ownership rights in the new flat along with you and makes the investment at least equal to the long term capital gains accruing to him. As regards the flat at Mumbai, owned by you, it is advisable not to take possession from the developer and assign the rights which you have acquired under an agreement. The authority can be given to the prospective purchaser to take the possession directly from the developer. The long-term capital gains on transfer of the rights can be set off, against your pro-rata investments in the new flat which you will acquire on co-ownership basis under Section 54. Both you and your father will be entitled to claim the deduction though under different sections of the Income Tax Act, 1961. If you take the possession of the flat and then transfer the same, dispute may arise with the tax department as there are conflicting decisions as to whether the gains will be treated as long-term capital gains or short-term capital gains. The deduction under Sections 54 and 54F is available only against long-term capital gains. It will depend upon the facts of the case and how the transaction is structured.

I plan to stop my SIPs in ELSS as I have taken up a job abroad. Will this have a huge impact on the tax I will be paying? Do you suggest I continue with my ELSS SIPs — at least till end of the financial year to avail of the tax benefit even though I won't be working in India anymore? –MAMTA PAI

Investments under systematic investment Plan (SIPs) in Equity Linked Saving Scheme (ELSS) qualifies for deduction under Section 80C of Income Tax Act, 1961 with the maximum limit of Rs 1,50,000 while computing taxable income under the provisions of the Act. The deduction is available only for the amount contributed under the scheme. Depending upon your gross total income you should decide whether you should continue to make investments or stop them. Your status will be non-resident under FEMA once you take up a job abroad. Your investments in India should also be in compliance with FEMA Regulations.

Please send your queries on Stocks to; Mutual Funds to; Tax to; Insurance to; Realty to
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

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