Tax Query: Tips for Property Sale, TDS Certificate, and LTCG Exemption

 

Is TDS certificate required for property sale?

I recently sold a property owned jointly by my mother-in-law, my wife and me. The property was purchased with a loan taken in my name although the sale deed did not mention any proportion of our shares in the property. The buyer paid the sale amount in three equal parts to each of us and also paid tax deducted at source (TDS) of the three sellers. Is the challan or tax receipt given by the buyer proof of the advance tax paid? Is TDS certificate (Form 16B) required? To calculate long term capital gains (LTCG), can I include money spent on interiors and other work as cost of improvement? Also, what constitutes the cost of transfer?

My wife and I had bought a house in 2019. The registration was completed the same year but the property is expected to be handed over this year. Can I show the purchase of flat mentioned towards exemption of LTCG tax? What is the timeline for reinvestment in residential property? Does it have to be done before filing the tax return? Then what is the 2-year window for investment?

—Name withheld on request

If the buyer has paid advance tax, TDS certificate is not required. However, this is non-compliance from the buyer side. But you as the seller need not worry about it.

As for the cost of improvement, it is the capital expenditure incurred to make any addition or improvement in the capital asset, which is incurred to increase the value of the capital asset. It also includes any expenditure incurred in protecting or curing the title. Accordingly, compound walls and protective doors may be considered. For transfer costs, legal expenses can be included towards it but travel and other incidental amounts cannot be included.

As for tax breaks under section 54, sale proceeds have to be reinvested into another residential house property within a period of one year before or two years after the date of transfer of old house property. Or the taxpayer should construct a residential house property within a period of three years from the date of transfer of the old house. Since the holding period starts from the allotment date, which is before the registration date, the other investment made in 2019 can’t be shown to claim exemption in this property. Take note that all the three owners of the previous property can purchase in their individual names and there is no condition to make a joint purchase to claim tax exemption. If you wish to claim exemption under section 54 but by the due date of filing the ITR, the capital gains amount has not been invested in purchase or construction of new house property, he should deposit such capital gain amount in the Capital Gain Deposit Account Scheme (CGAS).

As and when the individual identifies a new house for purchase or a plot for construction, the new house can be purchased or constructed by withdrawing the amount from the said account within the specified time-limit of 2 or 3 years, as the case may be. An alternative to CGAS account is to claim exemption under section 54EC by investing in bonds.

Nitesh Buddhadev is a chartered accountant and founder of Nimit Consultancy.