Long-term capital gain on a house, with exemption under section 54 (as set, 1961 Act, AY 2019-20)

Readings

1. Index numbers. This part prints none; part (a) of the same question 4 gives the cost inflation index as 100 for 2001-02 and 280 for 2018-19, and those are used. The index is the one the Central Government specifies by notification (section 48, Explanation (v)). The 100 for 2001-02 is the figure of CBDT Notification No. 44/2017; the notification that specifies 280 for 2018-19 is not held here, so that figure rests on part (a) of the paper.
2. Market value of 2001. The house was bought on October 06, 2001, after 1 April 2001. The option to take the fair market value on 1 April 2001 in place of cost is open only for an asset that became the assessee's property before that date (section 55(2)(b)(i)), so the printed market value of ₹1,50,000 does not enter the computation; the cost of ₹50,000 does. The figures if it is taken instead are given at the end.
3. Stamp duty value. None is given; the consideration of ₹15,00,000 is taken as not below it (section 50C).
4. The new house at Ghaziabad is a residential house in India.

Nature of the gain

A building held for more than 24 months is a long-term capital asset (section 2(42A) and its third proviso). Shyam held the NOIDA house from 06.10.2001 to 10.07.2018, nearly 17 years, so the gain is long-term.

Computation of long-term capital gain

Indexation follows section 48, second proviso and Explanation (iii): cost × index of the year of transfer ÷ index of the first year of holding (2001-02).

Exemption under section 54

• Conditions. Shyam is an individual; the gain arises on a long-term residential house whose income is chargeable under the head Income from house property; and he bought one residential house in India within two years after the transfer (on 20.12.2018), the Act allowing purchase within one year before or two years after the transfer, or construction within three years after it (section 54(1)). All are met. Any part of the gain not used for the new house before he furnishes his return under section 139 must be deposited under the scheme notified by the Central Government, before he furnishes that return and in any case by the due date under section 139(1), and the return must carry proof of the deposit (section 54(2)). Shyam bought the house on 20.12.2018, before any return for assessment year 2019-20 could be furnished, so no deposit arises here.
• Amount. Where the gain is more than the cost of the new house, the exemption is the cost of the new house and the difference is charged (section 54(1)(i)): exempt ₹8,00,000. Had the gain not been more than that cost, the whole gain would be exempt, and on a sale of the new house within three years of its purchase its cost would then be reduced by the exempt gain (section 54(1)(ii)).
• For assessment year 2019-20 the exemption is for one house; the option of two houses (for gains up to ₹2 crore) was added only from 1 April 2020 (the footnote to the proviso of section 54(1)).

Capital gain chargeable to tax

It is taxed at 20% under section 112(1)(a); for a resident individual the gain is first reduced by any part of the basic exemption limit that the other income leaves unused (proviso to section 112(1)(a)). If Shyam sells the Ghaziabad house within three years of buying it, its cost is taken as nil in computing the gain on that sale (section 54(1)(i)).

If the market value is read otherwise

If the ₹1,50,000 is taken as the cost (as if the fair market value on 1 April 2001 could be chosen), the indexed cost is ₹4,20,000, the gain ₹10,70,000, and after the exemption of ₹8,00,000 the chargeable gain is ₹2,70,000.