Tax Talk

SANJIV CHAUDHARY | Updated on January 07, 2014 Published on January 07, 2014

I am 62 years old and received Rs 90 lakh as my share through sale of ancestral house property in June 2011. I purchased a plot with an idea of constructing a house within three years (before June 2014).

In case I am unable to construct a house, do I have to pay capital gains tax on Rs 40 lakh at the rate of 10 per cent without indexation? And in which year? Please clarify.

– R. Giridhar

According to the income-tax laws, long-term capital gains shall be computed by deducting from the gross sale consideration received or accruing on sale of the long-term asset the following amounts, namely: the indexed cost of acquisition of the asset and the indexed cost of improvement; and the expenditure incurred wholly and exclusively in connection with such transfer.

The resulting gain, if any, will be subject to tax at the rate of 20.6 per cent (inclusive of education cess and secondary and higher secondary education cess). The special rate of 10 per cent without indexation is applicable only for long-term listed securities or units or zero coupon bonds.

You may avail an exemption from LTCG tax by reinvesting such LTCG in purchase or construction of a new residential property within the time-lines prescribed under the Act. If the amount of LTCG cannot be fully utilised (in purchase or construction) within the due date of filing the tax return (pertaining to the financial year in which original property was sold), the unutilised amount is required to be deposited in a capital gains account scheme with a specified bank before the due date of filing the return in order to be eligible to claim the LTCG tax exemption. We are assuming that you have deposited the unutilised amount in the said scheme before the due date of filing your tax return for FY 2011-12.

If the above amount is not utilised within the specified time (i.e., within two years from the date of sale in case of purchase of new property and three years in case of construction of property) then the capital gains exempted shall be reversed to the extent the exemption was taken under the above section and will be charged as income in the year in which the period of three years expires. Hence, in your case, if you are unable to construct a house within the stipulated time, you will have to pay capital gains tax on the exemption claimed u/s 54F of the Act in FY 2014-15.

Mail your queries to >taxtalk@thehindu.co.in

(The author is a practising chartered accountant)

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