Use The Capital Gains Account Scheme To Store Unused LTCG – Livemint – 4-Dec-2014
December 9, 2014 - Uncategorized
My husband had bought a flat in 2007, which he wants to sell now. The flat is in his name. Can we claim an exemption from capital gains tax? What are the avenues to save tax in this case? —Maya Shankar As the old flat has been held since 2007, it shall be termed as long-term capital asset and the resultant gains, if any, shall be taxable as long-term capital gains (LTCG) in the hands of your husband. While calculating the LTCG, the cost of acquisition and improvement, if any, shall be adjusted by applying the cost inflation index notified by the tax authorities in the year of purchase and sale, respectively. Your husband can avail the LTCG as exempt from tax by re-investing the LTCG in one new residential property located in India within the specified time frames (i.e. within one year prior to sale date or two years from the sale date or within three years for an under-construction property) as per section 54 of the income tax Act. Accordingly, the amount invested in new residential property can be claimed as exempt from tax and the balance amount, if any, shall be taxable at a flat rate of 20.6% (including education cess). Further, if his taxable income during the financial year 2014-15 exceeds Rs.1 crore, he will be liable to pay surcharge at 10% on basic tax rate. If your husband is unable to re-invest the LTCG in a new residential property before the due date of filing personal tax return for the FY2014-15 (which is 31 July 2015), then the unutilized LTCG could be deposited into the Capital Gains Account Scheme (CGAS). Please note that the amount deposited into the CGAS should be utilized towards purchase of a new residential property within two years or, in case of under –construction property, within three years of the sale of old residential property. If you are unable to utilize the CGAS funds within the aforesaid time frame, the unutilized amounts shall be taxable as LTCG in the FY in which three years from the sale of old flat has ended. Alternatively, your husband can invest the LTCG arising from the sale of the flat in specified bonds within six months from the sale date subject to the cap of Rs.50 lakh under section 54EC. Please note that the investment in a new property or specified bonds has a lock-in period of three years. Accordingly, if the new property is sold or the bonds are converted into cash within a period of three years, the exemption claimed from LTCG in respect of old property shall be revoked. Apart from this, if your husband avails any loan or advance against the security of the above bonds, the same shall be deemed to be converted into cash.