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No Sec 54 exemption if selling house immediately after possession

Short-term capital gains get taxed as regular income

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I read your article on Twitter - Go for Pension plans with sure returns where you have explained examples of a joint-home loan and houses, I have a similar case and request you to advise. I own two flats jointly with my spouse, with home loan being paid jointly on both houses. I bought the first house in Chennai where I used to work and then shifted to Mumbai where I work now and have purchased a flat recently on home loan. I have been trying to sell the Chennai house but there are not many takers. Property 1 in Chennai has home loan, rent Rs 30,000 and interest on loan Rs 45,000 per month; property 2 in Mumbai has home loan, is self occupied and interest on home loan is Rs 1 lakh per month. Please advise if my spouse and I can each claim Rs 2 lakh per property i.e Rs 4 L Per person or can we claim only Rs 2 lakh per person.
-Krish Sreenivas

Here is how the income from house property will be calculated for you and your spouse assuming both of you own 50% of the flat and also each pay 50% of the loan installments :.

For each of You :
i For Chennai Flat :
50% of the annual rental – 30,000*50%*12 = 1,80,000/-

Less:
Standard Deduction @ 30%                             =        54,000/-
Bank Interest                      – 45,000*50%*12= 2,70,000/-

                                                                       ---------------------------
                                                                       (-) Rs. 1,44,000/-
                                                                       -----------------------------

B ) For each of you - For Mumbai flat (self occupied)
Rental value taken at                                                 Rs. 0

Less:
Standard deduction at 30%                                    Rs. 0
50% of the annual rental -1,00,000*50%*12 =
Rs. 6,00,000 but limited to a maximum of        Rs. 2,00,000/-
                                                                       -------------------------------
                                                                       (-)        Rs. 2,00,000/-
                                                                       -------------------------------
              
Total loss under the head income from house property is Rs 3,44,000/- (Rs 1,44,000+Rs 2,00,000) .

For the accounting year ended March 31, 2017 each of you can set off Rs 3,44,000 (total Rs 6,88,000/-) against income from any other head including salary or business income.

From accounting year ended March 31, 2018 each of you can set off only Rs 2,00,000 (total Rs 4,00,000) against income from any other head including salary or business income and carry forward the loss of Rs 1,44,000 each for set off in future years against income from house property in future years.

I read in the DNA of few days ago, your guidance on "Sell House after possession" wherein you have indicated that in case of sale of flat where there is delayed possession, there is a chance that the tax department might seek to tax the transaction of the sale of flat as a short term rather than long term. I am worried now, since I have a scenario wherein I had booked a flat in December 12 and agreement to sell with the builder completed at that time. The possession was scheduled for December 14 and accordingly, progress-based payments I had been making to the builder. The possession got delayed by two years and in December 16 I got the possession and now I have finalised to sell it in last week of March. In your article, you have stated in sub point (2) that most cases on this issue have been decided against the tax department and ruled in favour of the buyers. Please mention some of these cases.
-M Jairam

I urge you to take proper professional advise before finalising the sale. Any advise given on the basis of incomplete facts may not be correct or applicable and in case of flat sales the tax impact can be very large. Please remember that if the capital gains is deemed as short term instead of long term , not only no indexation is available but you also wont be able to claim exemption under section 54 (buying another residential flat) or section 54EC (capital gain bonds). Short-term capital gains get taxed as regular income.

Here is a decisions that is in favour - [2017] 79 taxmann.com 67 Anita D. Kanjani v.Assistant Commissioner of Income-tax, 23(1), Mumbai that has quoted many other decisions

Here is a decision that is against [2012] 24 taxmann.com 91 Assistant Commissioner of Income-tax-19(2) v. Jaimal K Shah that has quoted another Mumbai high court decision. I personally think it is on a different footing but as I mentioned please do seek professional opinion before finalising your sale.

Harsh Roongta is a CA and Sebi-registered investment advisor. Send your queries to personalfinance@dnaindia.net or tweet them to @AskHarshdna

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