Financial Health Check

I have entered into a collaboration agreement with a builder to build a three storied house by demolishing an old house in a South Delhi col...

I have entered into a collaboration agreement with a builder to build a three storied house by demolishing an old house in a South Delhi colony on a plot measuring about 600 square yards. According to the agreement I will retain the ground floor and second floor with terrace rights, the builder will take the first floor and pay me Rs 5 lakh. How is the capital gains tax calculated in such a case? How much should I invest in government bonds so that I need not pay capital gains tax?
Atul, Delhi

Without going into complicated exercise of computing your capital gain, the principle of capital gains is that even ‘exchange’ of capital asset or settling sale consideration ‘in kind’ does constitute ‘transfer’ and hence does entail capital gain. In such situations, the market value of assets exchanged or provided in kind is to be taken. Capital gain in your case may be worked out on that basis.

So in your case for the purposes of stamp duty you would have in any case, worked out the market value of the property ‘sold’ by you to the builder. You may contend that you have merely ‘sold’ the super structure and not the land. This will bring down the capital gain to that extent. You may also contend that the capital gain made by you on one residential house stand reinvested in another residential house and hence you may be eligible to get exemption from such capital gain made by you under section 54.

However, the complicated nature and financial stakes in your transaction are sufficiently large to justify your consulting a tax counsel with all the documents.

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In today’s newspaper (6 June 2004) you have mentioned that there are mutual fund schemes which invest only in Central Government securities and hence are safe, tax efficient and liquid and are thus are preferred over FDs in banks. Could you please name these mutual funds?
Purushottam Latey

UTI, HDFC, Templeton and JM are some of fund houses that have these schemes known as GSec Schemes. Any Mutual fund agent will provide you the requisite forms and details.

Send in your insurance, tax, investment and financial planning questions to ymm@expressindia.com and get advice from our panel of experts

Disclaimer: The information and advice on this page is only indicative. The Indian Express takes no responsibility for the investment decisions of the readers.

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