Sunday, April 27, 2014




Chartered Accountant


Query 1]
I have purchased a plot on 07/10/2002 for Rs. 3,04,000/- and paid stamp duty and registration charges Rs. 48,640/-. I have thereafter started house construction in the said plot in 2004 and completed it in July 2005. I have taken housing loan of Rs. 9,67,500/- from ICICI Bank. In 2007-08, I have incurred near about Rs. 3.64 Lacs for furnishing and coloring of the said house. But today, I do not have any documentary proof of the same. I have decided to sale the said house now. The offer for my house is Rs. 70.00 Lacs. How capital gain is calculated in this situation? Please guide me how much capital gain tax I will have to pay and how it will be calculated? [Mr. B. N. Patil-]
1.      Computing Long Term Capital Gain (LTCG):
Long Term Capital Gain (LTCG) is to be calculated by deducting the following from the full value consideration (i.e., In your specific case, Rs. 70 Lacs or the Stamp Duty Valuation if it is higher than Rs. 70 Lacs):
(a) Indexed cost of Acquisition [Cost Inflation Index (CII) for the FY 2002-03 is “447” whereas same for the FY 2014-15 has not yet been notified]
(b) Indexed cost of Improvement [Cost Inflation Index (CII) for the FY 2007-08 is “551”]
Further deduction is also available towards the expenses incurred WHOLLY & EXCLUSIVELY in connection with the transfer like brokerage, legal charges etc.
In your specific case, expenses towards stamp duty & registration charges would form the part of your cost of acquisition whereas construction expenses incurred by availing housing loan from ICICI (Rs. 9,67,500 plus additional margin that may have been invested by you) would be treated as cost of improvement. The deduction towards further improvement coloring & furnishing in 2007-08 would be admissible on the basis of documentary evidences only. Without documentary evidences, the deduction could be denied.
2.      Taxability of LTCG:
LTCG is taxable @ 20% u/s 112 of the Income Tax Act-1961.
3.      Exemption against LTCG:
You can save LCTG tax by opting for an exemption u/s 54 or U/s 54EC, as under: -
i) Exemption Under Section 54F:

Exemption u/s 54 is available if the taxpayer invests the amount of LTCG for purchase/construction of a house property. The time period within which investment should be done is as under:
a] For Purchase: Within O
ne year before or two years after the date of transfer; or
b] For construction: Within a period of three years from the date of transfer.
[It may be noted that u/s 54, taxpayer is allowed 2 years for purchase and 3 years for construction of the house property. However, the capital gain tax on such transfer is taxable in the assessment year in which transfer took place and the return of income of that previous year has to be filed before the specified date i.e., due date. Hence, the tax payer has to take a decision for purchase/ construction of the house property before the date of furnishing of the return otherwise the capital gain would be taxable. To enable the taxpayer to claim an exemption, Income Tax Act has specified an alternative in the form of Deposit under the Capital Gain Deposit Accounts Scheme-1988 (CGDAS) for earmarking the amount for purchase/construction within specified time limit. The amount of LTCG which is not utilized by the taxpayer for purchase or constructions of the new house till due date has to be deposited under the CGDAS before the DUE DATE of furnishing the return of income. After deposits, the amount already utilized by the taxpayer for purchase/ constructions of the new house till due date, along with unutilized LTCG so deposited, shall be eligible for exemption u/s 54 in the year in which LTCG has arisen. Later on, whenever taxpayer purchase/ constructs the house property within a specified time slot, he can make payment from the CGDAS.]

ii) Exemption Under Section 54EC:
To claim an exemption u/s 54EC, taxpayer  have to invests the amount of Long Term  Capital Gain in Specified bonds issued by the Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer of assets.

Query 2]
Due to recent heavy rains, my agriculture crop is totally lost, resulting in loss of around Rs. 50,000/-. Can this loss be claimed as deduction against income while calculating income tax of the year? [Ravi Kolhe, Nagpur-]
Agricultural income is an exempt income & so, loss thereon could not be set off against other income.

Query 3]
I am a salaried person. I am taking HRA. Now, I have purchased a flat after selling my other plot. I had not taken any home loan for this. I want to know two things:
1.      How can I claim HRA exemption? Which expenditure on flats are taken for this exemption?
2.      I want to take loan for interior and furniture for this flat. Can I claim exemption on interest of this loan? OR which type of loan I should take so that I can claim exemption? [R.V.Deshmukh-]
1.      Queries posted by readers in general often reflect the mass level misconception about availability of deduction against House Rent Allowance (HRA). The following write up may be of help for all the readers of Tax Talk.
I] No Exemption is available towards House Rent Allowance (HRA) where an employee lives in his own house, or in a house for which he doesn’t pay any rent [Section 10(13A) of the Income Tax Act-1961 read with Rule 2A of the Income Tax Rule].
Deduction towards HRA & Home loan can be claimed simultaneously. For claiming an exemption u/s 10(13A) towards HRA, Assessee should have incurred the expenditure on rent and should not be the owner of the same house property.
III] Exemption in respect of House Rent Allowance is regulated by Section 10(13A) read with Rule 2A of the Income Tax Rules, 1962. As per the provision, the least of following is exempt from tax:
a. An amount equal to 50% of salary, where the residential house is situated at Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of salary where residential house is situated at any other place;
b. House rent allowance received by the employee in respect of the period during which the rental accommodation is occupied by the employee during the previous year; or
c. The excess of rent paid over 10% of salary.
Following points need to be taken in to consideration while calculating the amount of HRA admissible as exemption u/s 10(13A):
i] “Salary” for the purpose of computation of exemptions u/s 10(13A) means Basic Salary and includes Dearness Allowance if terms of employment so provide. It also includes commission based on a fixed percentage of turnover achieved by an employee as per the terms of contract of employment AND EXCLUDES ALL OTHER ALLOWANCE & PERQUISITE.

2.      In your specific case, it may be noted that
1. Exemption is not available where an employee lives in his own house, or in a house for which he doesn’t pay any rent.
2. Any loan availed for interior or furniture is not eligible for deduction (neither towards interest nor towards principal repayment).

 [The author is a practicing Chartered Accountant and is a partner of M/s. SSRPN & Co., Nagpur. Readers may send their queries at  If you wish to unsubscribe from the mailing list, please reply back “unsubscribe” on the same email id]