Exemption on Sale of House Property and further Purchase of Another House Property – Section 54
The exemption under section 54 is available when asset transferred is house property which was held for more than 24 months before transfer and the capital gains from transfer from such house property are reinvested into buying or constructing another house property.
However, once in the lifetime of a taxpayer the above said exemption is available against investment in two house properties, provided the capital gains does not exceed Rs. 2 crores.
The taxpayer is required to invest the amount of capital gains and not the entire sale proceeds.
The reinvestment by way of purchase of the new property can be done either 1 year before the sale or 2 years after the sale of the property. If the reinvestment is by way of construction of a property, such construction must be completed within three years from the date of sale.
If the reinvested property is sold within 3 years of its purchase / completion of construction, the exemption granted shall be taken back and the same shall become taxable in the year of the sale.
Any amount of capital gain, which could not be utilised towards the purchase or construction of the new asset before the due date of furnishing the tax return, shall be deposited in an account in any bank for claiming the exemption for reinvestment. The assessee shall be entitled to withdraw such amount towards the reinvestment from the said bank account and shall be utilised in the subsequent years for the purchase or construction of the new asset within the specified period of 2 years or 3 years as the case may be. Any amount not so utilised shall be charged to tax as the income of the year in which the period of three years from the date of the transfer of the original asset expires.
Exemption on capital gains on sale of ay asset other than house property – Section 54F
The exemption under section 54 is available when an asset transferred is any asset other than a house property which is a long-term asset and the capital gains from the transfer of such house property are reinvested into buying or constructing a house property.
Entire sale consideration has to be invested and not only the capital gain to buy or construct the new residential house property. However, if such reinvestment is only a portion of the sale proceeds, the capital gains exemption will be in the proportion of the invested amount to the sale price, i.e. capital gains x cost of new house / net consideration.
The reinvestment by way of purchase of the new property can be done either 1 year before the sale or 2 years after the sale of the property. If the reinvestment is by way of construction of a property, such construction must be completed within 3 years from the date of sale.
If the reinvested property is sold within 3 years of its purchase / completion of construction, the exemption granted shall be taken back and the same shall become taxable in the year of the sale.
Any amount of capital gain, which could not be utilised towards the purchase or construction of the new asset before the due date of furnishing the tax return, shall be deposited in an account in any bank for claiming the exemption for reinvestment. The assessee shall be entitled to withdraw such amount towards the reinvestment from the said bank account and shall be utilised in the subsequent years for the purchase or construction of the new asset within the specified period of 2 years or 3 years as the case may be. Any amount not so utilised shall be charged to tax as the income of the year in which the period of 3 years from the date of the transfer of the original asset expires.
Exemption on Sale of House Property on Reinvesting in specific bonds – Section 54EC
Exemption is available under Section 54EC when capital gains from sale of the long-term capital asset, being land or building are reinvested into specific bonds issued by National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC), which are locked for a period of 5 years.
The limit for such investment is up to Rs. 50 lakhs.
For availing of this exemption, the investment has to be done within 6 months from the date of transfer of the original asset or before the due date for filing the tax return whichever is earlier.
Exemption on Sale of House Property on Reinvesting in specified equity shares – Section 54GB
The exemption under section 54GB is available when asset transferred is a house property or a plot of land which is a long-term asset and the value of the consideration as reduced by the expenditure incurred for the transfer of the said asset is invested in subscription of the equity shares of the company, which satisfies the following conditions:
- The company should have been incorporated in India.
- The company should have been incorporated during the period from 01st April of the year in which the capital gain has arisen to the due date of furnishing of the income tax return for the said year.
- The company is engaged in the business of manufacturing of an article or a thing.
- The company in which the assessee has more than 50% share capital or more than 50% voting rights after the subscription in equity shares by the assessee.
- The company should qualify to be a medium or small enterprise under the Micro, Small and Medium Enterprises Act, 2006 or the same is an eligible start-up.
Further the company should utilize the said subscription money for purchasing the new asset within a period of one year from the date of subscription.
If the amount of net consideration invested is equal to or less than the cost of new asset, then entire capital gain would be exempt. However, if the amount of net consideration is greater than the cost of new asset, then proportionate capital gain would be exempt in following manner which is calculated as (investment in new asset * capital gain)/ net consideration.
The equity shares of the company and the new assets acquired by the company cannot be transferred for a period of 5 years from the date of acquisition and in case the of transfer, the exemption allowed under section 54GB would be withdrawn and the amount of exemption claimed earlier under section 54GB would be taxable in the previous year in which the equity shares of the company or the new assets.
Exemption on Capital Gains From Transfer of Land Used for Agricultural Purpose – Section 54B
When the asset transferred is a land used for agricultural purposes by an individual or the individual’s parents or Hindu Undivided Family (HUF) for 2 years before the sale, the capital gain when invested in the purchase of new agricultural land shall be exempt under section 54B.
The exempted amount under section 54 shall be the amount of investment in new agricultural land or capital gain derived, whichever is lower. The newly acquired agricultural land should not be sold within a period of 3 years from the date of its purchase.
In case the assessee is not able to purchase agricultural land before the date of furnishing of your income tax return, such capital gain shall be deposited in an account in any bank for claiming the exemption for reinvestment. The assessee shall be entitled to withdraw such amount towards the reinvestment from the said bank account. Any amount not so utilised shall be charged to tax as the income of the year in which the period of 3 years from the date of the transfer of the original asset expires.
Consideration not received for reinvestment:
Where the transfer of the original asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the assessee would not be able to invest the capital gain or net sale consideration as the case may be. Hence, the period available to the assessee under various sections for depositing or investing the amount of capital gain in relation to such compensation as is not received on the date of the transfer, shall be reckoned from the date of receipt of such compensation.
Capital Gains Account Scheme:
Where the taxpayer is unable to re-invest the capital gains in various options available to him before the filing of return of income or before the expiry of time to invest the gains, in order to enable the taxpayer to park his funds till they are invested for the prescribed purpose, the concept of Capital Gains Account Scheme (CGAS) was introduced.
Such unutilised amount has to be deposited in the capital gains account before furnishing return of income but not beyond the due date for furnishing return of income.
Capital gains account can be opened in any of the PSU bank or other bank branches. Such capital Gains account can be opened by making an application in duplicate in Form A.
Documents such as PAN, proof of address, a photograph would be required. The deposit can be made either in lump sum or instalments.
Where the assess intends to avail exemptions under different sections, separate applications shall be made for creating separate capital gains accounts.
Such accounts can be in the form of Savings account or Time Deposit, and both of them give interest like regular accounts.
The amount parked in the said bank account can be withdrawn as and when the same can be reinvested to meet the conditions of the relevant exemption section and any such amount withdrawn is required to be utilised for specified investment within 60 days of withdrawal and any unutilised amount may be re-deposited back into the said account immediately. Any amount either underutilized or unutilised beyond 60 days of withdrawal will become taxable.
Form B is required to be submitted for conversion of account from savings to term deposit or vice versa.
Form C shall be submitted for withdrawal from an account for the first time and Form D for subsequent withdrawal providing details of the manner of utilisation of money withdrawn earlier.
No loan can be obtained against Capital Gains Account Scheme and can neither be offered as collateral security or guarantee nor any charge be created on the same.
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