Capital Gain
Matter of WILL
Q. My wife has a plot in Panchkula (under construction). She wants to Will it in my name. Kindly let me know the procedure.
A. Your wife has to execute a Will in which she has to clearly state that the house at Panchkula would be inherited by you after her death. The following points should be taken into account note while preparing a Will.
The Will should clearly indicate the properties owned by the testator (person executing the Will) in respect of which he/she intends to make a Will.
The Will should clearly state in whose favour such properties are being bequeathed.
The Will should be dated and signed by the testator in his own handwriting.
The Will must be attested by two or more independent witnesses each of whom has seen the testator to sign the Will. Each of such persons must sign the Will in the presence of the testator.
There is no necessity to use any technical words. However, the wordings of the Will should be such that intention of the testator can be known there from.
It is not legally required to get a Will registered but it would be advisable to do so to prove its authenticity. The registration can also be of help in case the original is lost.
Q. I have prepared my Will in favour of my son who is living with me and has good relations with me. The Will was prepared and registered in 2001. Is such a Will still valid or invalid after the recent amended provisions of Section 6 of Hindu Succession Act 1956? Do I need to have it revised/amended as it was prepared in 2001 before the amendment took place?
A. The Section 6 of the Hindu Succession Act 1956, as amended, deals with the devolution of interest in co-parcenery property i.e. in respect of the joint family property. It has no relation with the right of a person to make a Will in respect of his self-acquired property. I presume that the property and assets referred to in your query are in the nature of self-acquired property and have not been inherited as a joint family property. In view thereof, there should not be any necessity of changing the Will executed in 2001.
In case you intend to change your earlier Will, then it will be better to incorporate a clause in the new Will that all earlier wills/codicils will have no effect after the execution of the latest Will.
Investing in capital gains
Q. I have transferred a society plot (residential) for Rs 50 lakh on January 28, 2010. The payment for the same has been received by cheque/P.O.; Rs 5 lakh (dated December 3, 2009), Rs 15,06,500 (dated 22.01.2010) and Rs 29,93,500 (dated 25.01.2010). The total amount has been deposited in a nationalised bank.
The authorities there have opened a capital gain account with a lock-in period of three years. Option to withdraw any or whole amount any time for future investment in residential property is there. The rate of interest is 3.5 per cent. As per Section 54EC or relevant paras, is it must to invest in capital gains bonds issued by NHAI or REC within six months of the transfer of property?
Or
As the bank has locked the amount for three years, will this automatically be treated as invested in such development bonds and IT Department will accept that and exemption from income tax will follow. These are observations and ruling of the bank. What is correct and applicable?
A. Your queries are replied hereunder:
The amount deposited with a nationalised bank under capital gains scheme account can be utilised for the purchase or construction of a residential house. The purchase has to be effected within a period of two years of the date of transfer of the plot and the construction can be effected within a period of three years of the date of sale of the plot.
The said deposit cannot be considered as an investment in a long term specified asset. For the purposes of Section 54EC presently long-term specified asset mean any bond redeemable after three years issued by the National Highway Authority of India or Rural Electrification Corporation Limited. The said investment has to be made within six months of the transfer of a capital asset.
Eligible for LTCG exemption
Q. I entered into a deal for the sale of my land (non-agricultural) that was purchased in 1992 for Rs 1 lakh. The Agreement to sell was inked in January 2008 for Rs 25 lakh and the buyer gave me part payment as earnest money. The sale agreement was to be executed in August, 2008. In July, 2008, I purchased a residential plot totally out of the earnest money amount, with an intention to construct a house on the same after the execution of the deal.
Unfortunately, some misunderstanding arose between the buyer and myself and the deal lingered on. Finally the sale deed was executed in March, 2010, and the balance amount was paid to me in March 2010.
I deposited the money immediately in capital gain fixed deposit scheme account with State Bank of Patiala, as I wanted to construct a house from that money on the plot purchased from the earnest money. I don’t have any other house in my name. Please clarify the following:
Whether construction on the said plot will qualify for the exemption against long-term capital gain?
Whether the cost of plot will qualify for the exemption against LTCG?
What other option is available to save LTCG?
A. On the basis of the facts given in the query it should be possible for you to claim the exemption under Section 54 of the Income-tax Act 1961 (the Act) from the leviability of tax on the capital gain arising on the sale of plot purchased by you in the year 1992. The exemption, however, would be allowable subject to the condition that the construction of the house is completed within three years of the date of transfer of the plot which took place in March 2010. It should also be possible for you to claim that the amount of earnest money utilised for the purchase of a residential plot should also qualify for exemption from the leviability of tax on capital gain arising on the sale of land. The consideration towards the sale of the land less earnest money having been deposited under the capital gain scheme account, it may not be possible for you to adopt any other option except to utilise the net consideration towards the purchase or construction of a residential house within the specified period.
Separate repayment
If wife is the owner of land, and as per Section 64, the property is registered in the names of both husband and wife and they take loan for the construction and register the property in their names, then can they avail deduction u/s 80c for the principal and 24B (for interest) as per their payment to bank?
A. If the land has been registered in the name of both husband and wife, and the borrowing from bank for the construction of a property is also made by both of them. In such a case, it should be possible for both of them to claim deduction under Section 80C of the Act with regard to the repayment of the installment. It should also be possible to claim the deduction for the interest paid/payable in respect of such a loan under Section 24 of the Act. It would be advisable for the husband and the wife to repay their share of installment towards loan and interest separately from their own bank account.