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CMA Intermediate · Direct and Indirect Taxation · Capital Gains

Mr. Dev Malhotra, an individual, claimed exemption under section 86 on a long-term capital gain using a new residential house purchased in April 2026. He sells that new house after 30 months from its purchase. What is the consequence under the Income-tax Act, 2025?

Because the new house is sold within three years of purchase, the capital gain earlier left uncharged on the basis of its cost becomes chargeable as long-term capital gains in the tax year in which the new house is transferred, not in the original transfer year.

  1. ANothing further, as the three-year restriction applies only to construction
  2. BThe gain not charged earlier on the basis of the new house's cost is charged as long-term capital gains of the tax year in which the new house is transferredCorrect
  3. CThe gain not charged earlier is charged in the original year of transfer
  4. DThe gain not charged earlier is charged only if the sale price is below the purchase cost

Explanation

Section 86(7) provides that if the new asset is transferred within three years from purchase or construction, the gain not charged earlier on the basis of its cost is charged as long-term capital gains of the tax year of that transfer. Thirty months is within three years. It is not charged in the original year, and the sale price is irrelevant to this charge.

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