Skip to main content

Save Taxes on your property sale

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 


Get a tax deduction on sale of commercial property. Here's how

 

Arun Kumar owns a residential property in his name which he uses as residence and also owns an office space which has been rented out. Along with this, he has also inherited a plot of land from his father.

Kumar works as a whole- time director with a private sector company.

As per the provisions of The Income- tax Act (' the Act'), the rental income earned by Kumar from the commercial property will be taxed under the head " Income from house property" and will be allowed all the prescribed deductions on the same.

Kumar has recently sold the inherited plot of land and wishes to reinvest the proceeds in another residential property, as advised by his tax consultant, in order to claim exemption under section 54F of the Act. However, Section 54F lays down a pre- condition that the taxpayer should not own more than one residential property ( whose income is chargeable under the head " Income from house property") at the time of the investment, as above, to claim exemption under this section. In Kumars case, the income from the office space is currently being offered under the head "income from house property" other than the residential property that is being claimed as a self- occupied property. Does this imply that Kumar will not be able to claim the exemption under section 54F? The Act does provides exemption on long term capital gains earned on sale of property. One of the provisions is Section 54F of the Act, which provides that if a taxpayer earns any long- term capital gains through sale of any capital asset, other than a house property, then exemption can be claimed by investing the sale proceeds in a house property within the prescribed time limit, that is, within two years from the date of sale of the property or within one year before the date of sale. The time limit is extended to three years, in case the individual were to construct a new house property.

In one of the recent cases that came up before the Chennai Income Tax Tribunal, a taxpayer had filed his return of income electronically and claimed deduction under section 54F of the Act in his computation of income. His case was selected for scrutiny by the tax officers. During the course of assessment, the taxpayer submitted that in addition to the new property bought, he owned one more residential property and one commercial property in Chennai. In view of the qualifying condition defined under section 54F, the tax officer rejected the taxpayer's exemption claim on the ground that he is the owner of two properties.

For claiming exemption, it is essential that on the date of sale, the taxpayer should not own more than one residential property other than the new property. The officer was also of the view that the term 'residential property' and 'commercial property' have not been defined separately under the Act. A residential property could be converted into commercial and vice versa by virtue of its use. With this view in mind, the officer rejected the taxpayer's claim. At the first appellate level, the appellate officer found merit in the officer's findings and did not grant any relief to the taxpayer.

The taxpayer preferred a second appeal with the Tribunal. During the course of the appellate proceedings, the taxpayer's representative submitted that the commercial property owned by the taxpayer has been let out and is being used exclusively for commercial purposes. The income received from letting out is assessed under the head of income "Income from house property". It was further submitted that under the existing provisions of the Act, there is no other head of income provided for assessing rental income received from letting out of commercial property.

The taxpayers' representative argued that the view taken by the officer, that rental income from letting out of commercial property being assessed under the head "Income from house property" leading to the conclusion that the owns another residential property, is misconceived. Supporting documents like water supply bills, planning permits issued by the town development authority, rent agreements, etc to show that the building where the property is owned by the taxpayer is a commercial property were not considered by the officers.

Thus, it was amply clear that the property is not being used for residential purposes.

In its decision, the honourable Tribunal observed that the officer and the first appellate authority have wrongly concluded that the taxpayer owns two residential properties.

The Tribunal held that the observation of the officer and first appellate authority, that the property is residential, is not correct. This observation was based on the fact that since the taxpayer has claimed various deductions from rental income, under the prescribed section 24 of the Act, the property should be qualified as a residential property The Tribunal observed that the Act does not differentiate between rental income from house property and a commercial building. Both these incomes are assessed under the head "Income from house property" subject to certain exceptions.

The relevant section under the Act prescribes three rules to be complied with for any income to be charged under the head 'House Property":

a. The property should consist of buildings;

b. The person should be the owner of the property;

c. The property should not be used for the purpose of his business / profession.

It relied on various judicial decisions in the past and held that the term "building" as used in the relevant sections of the Act is not qualified by the word 'residential'. There have been several decisions where the income from letting out of commercial buildings / warehouses / factory premises was held to be assessable under the head House property.

Based on the above, the honourable Tribunal held that the taxpayer is eligible to claim the deduction under section 54F of the Act.

In case the lower officer's view was further supported by the Tribunal, then it would have been difficult for individuals, like Kumar, owning one residential property and one or more than one commercial properties to claim capital gains exemption. With the favourable decision, Kumar can now reinvest the capital gains from sale of his plot into a second residential home.

|Sale proceeds from commercial property are eligible for tax exemption |Show proof that property is used solely for commercial purposes |Use documents like water supply bills, planning permits, rent agreements

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund Tata Mutual Fund has decided to merge Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund, with effect from January 16, 2015.   Investors of Tata Indo-Global Infrastructure Fund can redeem/ switch out units from December 13, 2014 to January 12, 2015 without paying any exit load. For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund A...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now