What are the tax consequences of the sale of an apartment under construction?

My mother sold residential land in June 2022 which was purchased in fiscal year 2007-08. She also plans to sell a semi-finished duplex (construction not yet finished after years of delay due to the builder’s fault) which was reserved in December 2011. Can she save taxes by investing in another dwelling house? She already owns a residential apartment.

Answer: Since the land is sold after 24 months and the semi-finished duplex is sold after 36 months, the capital gains of both assets would be treated as long-term capital assets and the profits should be taxed as capital gains at long term.

Your mother can certainly claim the exemption of long-term capital gains resulting from the sale of residential land as well as ownership of the incomplete house under Section 54 F of the Tax Act on income. To claim the capital gains exemption under Section 54F, your mother will need to invest the entire amount received from the sale of these assets within two years to purchase a new dwelling house or build a new dwelling house within three years. It can also reserve assets under construction, but the construction must be completed within three years from the date of sale of these assets. Since your mother only owns one house in addition to what she intends to buy, she is eligible for the tax benefits of Section 54 F.

In case the amount is not fully used for the purchase of the dwelling house by the due date of the ITR, i.e. July 31, 2023, the unused amount must be deposited in the bank account to be opened under the capital gains account scheme which can be used. within the specified time to make the payment for the house. The new house must be held for three years. In the event that only a portion of the sale proceeds are invested in the proposed home, the exemption available under Section 54F will be reduced proportionately.

Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on Twitter.

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