Long-term capital gain on a commercial property with section 50C, 54F and 54EC (as set, 1961 Act, AY 2017-18)

Assumptions

1. X is resident in India; on the date of the sale he owned not more than one residential house, and he bought no other house within one year, and built none within three years, after the sale (with its income chargeable under the head house property), the cases that would withdraw section 54F (section 54F(1), proviso).
2. The stamp duty value of ₹54,00,000 was adopted on the date of the sale (no earlier agreement), and X does not dispute it.
3. X, born on 31-3-1957, is 60 years old by the end of previous year 2016-17, so the slabs for a resident aged 60 to 80 apply (Finance Act, 2017, First Schedule, Part I, Paragraph A, item (II)).

Nature of the gain

Held from 15-10-1979 to 1-6-2016, far more than 36 months, the property is a long-term capital asset (section 2(42A)). As it was acquired before 1-4-1981, its cost may be taken as its fair market value on 1-4-1981 at X's option (section 55(2)(b)(i), in its wording before 1 April 2018, given in its footnote); ₹3,00,000 is more than the cost of ₹2,00,000, so it is taken. On that basis the improvement of ₹80,000 in 1980-81, before 1-4-1981, is not counted: only improvements made on or after that date count (section 55(1)(b)(2)(i), same footnote).

Computation of long-term capital gain

Exemptions

Section 54F (new residential house). The property sold is not a residential house, and a residential house (read as in India, as section 54F(1) requires) was bought on 6-1-2017, within two years after the sale, so section 54F applies (section 54F(1)). The cost of the new house (₹30,00,000) is less than the net consideration, so the exempt part is in proportion (section 54F(1)(b)). Net consideration is the full value of the consideration received less the transfer expenses (section 54F, Explanation): ₹50,00,000 − ₹1,00,000 = ₹49,00,000. The stamp duty value is deemed to be the consideration only for section 48 (section 50C(1)), so it is not used here.

Exempt = ₹18,20,930 × ₹30,00,000 / ₹49,00,000 = ₹11,14,855.

Section 54EC (bonds of the National Highways Authority). The ₹10,00,000 was invested on 10-1-2017, more than six months after the sale on 1-6-2016 (the six months ended on 30-11-2016), so no exemption is allowed (section 54EC(1)).

Tax liability for assessment year 2017-18

Notes

1. The donation of ₹1,00,000 to the Rajiv Gandhi Foundation would qualify for a 50% deduction (section 80G(1)(ii) and (2)(a)(iiid)), but X's gross total income is wholly long-term capital gain, against which no Chapter VI-A deduction is allowed (section 112(2)). It gives no relief.
2. The gift of the remaining ₹8,00,000 to his daughter has no tax effect for X.
3. The stamp duty value is more than 105% of the consideration, so section 50C applies on any reading.

If the facts assumed are otherwise

If X is a non-resident, the unused exemption limit cannot be set against the gain (the proviso to section 112(1) covers only a resident): tax liability ₹1,45,450 (Finance Act, 2017, First Schedule, Part I, Paragraph A, item (I)). If the stamp duty value were used for the net consideration of section 54F, the exemption would be ₹10,30,715 and the taxable gain ₹7,90,215.