PremiumSince your indexed capital gains will be lower than this threshold limit of ₹2 crore, you can claim exemption under section 54 for sale of one house by investing the capital gains in two residential houses within prescribed time limit
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I stayed in a chawl room for almost 35 years in Mumbai. In 2010, I got a residential flat in a tower after redevelopment of the chawl. I had also paid additionally around ₹2 lakh to the builder for the flat. I also had to pay stamp duty and registration charges for the flat. Now, I propose to sell this flat for ₹1.95 crore. What amount should I take as cost of the flat for capital gain computation? Is the ₹2 lakh paid to the builder as well as stamp duty and registration charges as indexed cost to be taken my cost of my flat? Whether I can claim the capital gains exemption by buying two houses in different buildings?
Answer: The rooms in a chawl in Mumbai are generally held on tenancy basis and not on ownership basis. So what you had was a tenancy right in the room occupied by you in the chawl. Since you had received a flat in the tower for surrendering such tenancy rights this amounted to availing exemption under Section 54F at that time.
I am sure you would have disclosed the same in your ITR filed for the relevant year in case you were filing your ITR. In case you were not required to file an ITR, you still did not have any tax liability at that time. You were also not required to file your ITR in 2010 only on the basis of your exemption under Section 54F together with other income exceeding the basic exemption limit as the law requiring filing of ITR mandatory in case the income inclusive of exemption under section 54F exceeding the basic exemption limit came into force from assessment year 2020-2021.
For the purpose of computing capital gains on sale of the flat now, you have to take the market value of the flat on the date on which you got the possession as your cost of acquisition. For ascertaining the market value of the flat, you can obtain valuation report from a registered valuer alternatively you can take the stamp duty value of the flat on that date. You can add the cost of stamp duty and registration charges paid to the market value of the flat. You can not add Rs. 2 lakhs paid to the builder again in the cost as the fair market value of the flat is inclusive of the additional amount paid by you. The aggregate of fair market value and stamp duty & registration charges as indexed and reduced from the sale consideration is your taxable long term capital gains from sale of the present flat.
As far as claiming exemption for buying two flats in different buildings in concerned, the tax laws allow an individual and an HUF, once in a lifetime opportunity, to avail exemption under Section 54 for buying two residential houses by investing the long term capital gains arising from sale of one residential house provided the taxable capital gains of the residential house being sold does not exceed two crore rupees. Since your indexed capital gains will be lower than this threshold limit of ₹2 crore, you can claim exemption under section 54 for sale of one house by investing the capital gains in two residential houses within prescribed time limit.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter