What are the income tax implications of selling a under-construction flat?

The flats were allotted by CHB to eligible beneficiaries who lived in illegal colonies that have since been demolished. (HT FIle Photo) (HT_PRINT) — The flats were allotted by CHB to eligible beneficiaries who lived in illegal colonies that have since been demolished. (HT FIle Photo) **(HT_PRINT)**

2 min read . Updated: 23 Sep 2022, 12:14 PM IST Balwant Jain

Can my mother save taxes by making investments in another residential house? She already owns one residential flat.

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My mother has sold a residential plot in June 2022 which was bought in FY 2007-08. She is also planning to sell a semi-finished duplex (construction not yet completed after years of due date for builder's fault) which was booked in Dec-2011. Can she save taxes by making investments in another residential house? She already owns one residential flat.

Answer: Since the plot is being sold after 24 months and the semi-finished duplex is being sold after 36 months the capital gains of both the assets would be treated as long term capital assets and the profits are to be taxed as long term capital gains.

Your mother can certainly claim exemption for long term capital gains arising on sale of residential plot as well as the incomplete house property under section 54 F of the income tax act. For claiming the capital gains exemption under section 54F your mother will have to invest the entire amount received on sale of these assets within two years for purchase of a new residential house or get a new residential house constructed within a period of three years. She can also book and under construction property but the construction needs to be completed within three years from date of sale of these assets. Since your mother owns only one house in addition to what she intends to buy, she is eligible to claim the tax benefits under Section 54 F.

In case the amount is not fully utilised for buying the residential house by the due date of fling of the ITR i.e. 31st July 2023, the unutilised amount has to be deposited in the bank account to be opened under Capital Gains account scheme which can be used within the time specified for the purpose of making payment for the house. The new house needs to be held for three years. In case only part of the sale proceeds are invested for the proposed house the exemption available under Section 54F will get reduced proportionately.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.

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