Capital Gain Exemption

Income Tax Forms & Documents
1

Good morning!

What ITR do I need to file for claiming capital gains exemption u/s 54EC??

2

Hey @TanyaChopra

To claim Capital Gains Exemption under Section 54EC, you need to file ITR-2.

Read more about Section 54EC here

3

Details are as follow:

  • Commercial Plot is purchased through joint names (father and me), construction cost paid through cash.
  • Plot booked in 2019, Sale process started in 2022 [about 35% received via biana within a week ago, remaining 65% payment to be received within 2 months as per mutual agreement]
  • Plot’s Basic Sale Price = Rs. 33L; however, overall including EDC and Delayed Interest, up to Rs. 34L
  • Sale amount = Rs. 50L
  • I do not own any house, live under mother’s rental lease agreement, currently.
  • I’m a salaried employee under private company.

My queries/confusion:

  1. Cost Inflation Index FY based on possession date (not booking date) as entry date and sale transferred (not biana date) as exit date, right?

  2. Since it is a jointly held, I did not pay anything to acquire the commercial plot but father did. Now when we sell, 50% will be to each account, what would be my LTCG?

  3. Please correct me if I’m missing something for my LTCG (>24 mo.):
    (+) Sale Consideration: Rs. 25L (half of 50L overall joint)
    (-) Transfer Expenses: Rs. 0 (constructed via cash not eligible, right?)
    (-) Indexed Cost of Acquisition: 16.5L * 317/289 = 18.1L
    (-) Indexed Cost of Improvement: ?? (what exactly is this?)
    Long-Term Capital Gain: 6.9L

  4. If possession date and sale date is 24+ months , can I save LTCG tax by just investing Rs. 6.9L in IRFC/NHAI/PFC/IRFC bond under Section 54EC?

  5. If yes, can I keep 18.1L in my bank account or invest in FD / MF? Any further suggestion?

4

@Sakshi_Shah1 can you help ?

5

Hey @learner

  1. Indexed Cost of Acquisition is calculated as Cost of Acquisition * CII for Sale Year/ CII for Purchase Year. In your case, CII for Sale Year would be CII of the year in which you sold property. CII for Purchase Year would be CII of the year in which you got the possession of property.

  2. If you have not contributed towards the purchase consideration, you will not be treated as a co-owner for income tax purpose. Thus, the entire LTCG would be taxed in the ITR of your father as Sale Value - Transfer Expenses - Indexed Cost of Acquisition

  3. Cost of Improvement is a capital expenditure incurred by an assessee for making improvement in the property. It can be claimed as a deduction for computing capital gains. Indexed Cost of Improvement is calculated as Cost of Improvement * CII of year of sale / CII of year of improvement

  4. If the period of holding is more than 24 months, income is treated as LTCG. You can claim exemption under Section 54EC if you fulfill all the conditions as per the Section. Read more about it here

  1. With the remaining sale proceeds, if you keep them in bank account, you will earn Savings Interest, if you invest in FD, you will earn FD Interest, You can look for other investment options where you earn income and also gain tax benefit such as ELSS, PPF, NSC, etc. Read more about it here
6

Thanks a lot @Sakshi_Shah1 for the detailed answer and @Amulya_Garg for ensuring my queries addressed.

I do have a follow-up queries.

  1. Since the tax is under hand of my father as he only purchased the commercial plot, can I enjoy 50% of sale proceeds that is credited to my bank account without any tax? “Enjoy” in my term refer to Multi-Option-Deposit (Bank) with quarterly payout.

  2. My father has purchased another commercial plot, do you have any relevant article that explains how tax can be saved by utilizing the sale proceeds to buy another commercial plot (before or after)?

7

Hello @learner

  1. Ideally, since your father is the owner of the property, the sale proceeds should be credited to his bank account. If the money has already been credited to your account, there are chances that the Assessing Officer i.e. AO might question the source of funds and a justification why they are not reported as income in the ITR.

  2. Capital Gains on sale of commercial plot can be exempt if the taxpayer invests in any of the following assets:

  • Section 54EC - Buying bonds of NHAI, REC, etc
  • Section 54EE - Buying units of fund notified by Central Government to finance start-ups
  • Section 54F - Buying residential house property
8

The registration of commercial property comes under both father and my name (co-owners), which is how sale proceeds is credited to each of us, however, all the payments for purchase of property were done by father only. And my father will report the whole capital gains in his account.

Will this below stands true in my ITR if I do not report?

And thanks for 2nd point.

9

@Sakshi_Shah1 can you help?

10

Hey @learner

Your father should report the capital gains in his ITR. You need not report the same in your ITR. However, you must hold relevant proofs of the capital gains taxed in your father’s ITR in case the AO questions source of funds in your account.

11

The income tax department introduced a new Section 54EE of Income Tax Act with effect from 1st April 2017. Section 54EE provides for exemption from Capital Gains Tax on the sale of any long-term capital asset by investing into units of specified funds.

A taxpayer can claim an exemption u/s 54EE if they fulfill all the below conditions:

  1. Any assessee i.e. Individual, HUF, Company, LLP, Firm, etc can claim an exemption under Section 54EE.
  2. The asset sold is any Long Term Capital Asset (LTCA).
  3. The taxpayer invests Capital Gains within 6 months from the date of transfer of the original asset.
  4. Taxpayer invests in units of funds notified by the Central Government on or before 1st April 2019 to finance startups.
  5. The investment amount can not be more than INR 50 lakhs during any financial year.
  6. The investment amount can not be more than INR 50 lakhs during the current and succeeding financial year.

You can read more about Section 54EE here.

Got questions? Shoot’em here.

12

Hello @TeamQuicko
Please answer this.

I am selling my house which will lead to a capital gain.
I live in a standalone house. I plan to use the capital gains from the house sell to build another floor on top of my current house.
Can I do this without paying taxes on the capital gain?
Is this considered same as reinvesting the amount in another property within 2 yrs timeframe to save on the capital gain tax?

Thanks.

13

@Anar_Desai Can you please share your inputs.

14

yes

keep all the docs in place, such as floor plan passed, govt approval, as it will justify construction of a new property

Warm regards

CA Ankit Aggarwal
9999274569

15

HI, I own a residential flat jointly with my wife, one residential flat in my name and two residential plots in my name. Recently I sold a residential plot after owning it for 9 years. I want to use the capital gain amount received from selling the plot in buying a residential flat jointly with my mother in law. She owned one flat and she has sold that and now by clubbing the sale amounts of two properties (one residential flat sold by my mother in law and one residential plot sold by me) we want to buy a residential flat. Can both of us claim capital gain exemption? Can I get capital gain tax exemption on investing the gains received from selling a residential plot in buying a residential flat?

16

Hey, you are eligible to claim a proportionate exemption under section 54F and your mother-in-law is eligible to claim exmeption under section 54.

Note that the exemption will be calculated based on the proportion of investment made by both the assessee. Hope this helps.

17

I have gained LTCG my selling mutual funds in my name. Can I claim exemptions under Section 54 of income tax by buying a residential property in my wife’s name?

18

Hi @pmurali_325

Yes, you can claim an exemption under section 54F on the sale of mutual funds. Primarily, the residential property should be purchased in the name of the person transferring the mutual funds.

19

If I invest the capital gains arising out of sale of a house property in buying an old house or old flat, can I avail capital gains exemption under the relevant act?

20

Hi @Narayanan_Nagarajan

Under section 54 of the Income Tax Act, if an assessee has earned long term capital gain on the transfer of residential property and a new residential house is purchased within 1 year before or 2 years after the date of transfer then exemption can be claimed.

LTCG and its exemption both will be calculated proportionately as per assessee’s share in ownership.

To read more about it you can refer to this article: Capital Gain Exemption under the Income Tax Act - Learn by Quicko.

Hope this helps!