• Payment of tax on un-utilized amount of capital gains after claiming exemption

I have an issue that I need help with regarding the payment of capital gains tax arising out of sale of a house property of my father. 
1) A residential property was sold by my father in Aug 2017 for Rs.46 lakhs. The sale resulted in long term capital gains for my father of Rs.14,44,800 (after considering the cost of acquisition as per indexation as Rs.31,55,200).
2) An account was opened under the CGAS (Captal Gains Account Scheme) in May 2018 and my father deposited an amount of Rs.24 lakhs into this CGAS account (even though the actual CG works out to Rs.14.44 lakhs). 
3) We had filed ITR-2 for AY 2018-19, where these details were declared and a deduction on the capital gains was claimed under Section 54F. 
4) However, subsequently, my father did not find any new house to purchase nor construct a new house. Given that no new property was purchased, it was assumed that the deadline for paying the tax on the capital gains (for which we claimed exemption) was Aug 2019 i.e., 2 years from the sale of the property. Hence on 7th August 2019, an Advance Tax of Rs.3,00,520 was paid by my father towards the tax on the capital gains of Rs.14.44 lakhs. 
5) Now when filing the returns for AY20-21 (FY19-20), we need to be able to declare that the deduction claimed on the capital gains u/s 54F in AY18-19 is no longer valid and that we paid the applicable taxes that became payable owing to the non-purchase of another property or construction of a new property. 
6) In this year's ITR-2 preparation software, in the sheet for Capital Gains, there is a section B(10) which is for "Amount deemed to be long-term capital gains". In that section, sub-section (a) asks for the details of the unutilized capital gains that had been deposited into capital gains account in a previous year. Now, here is the problem: In the table, logically, we should have been able to select "2017-18" in the column "Previous Year in which Asset transferred" and "54F" for the column "Section under which deduction claimed in that year". In the Excel preparation software, it shows "54", "54F", "54GB" and "54B" as the options for the section. But if the year selected is "2017-18", then it does not allow us to select any selection other than "54B". The remaining 3 options (54, 54F, 54GB) are only allowed to be selected if the year is "2016-17".

My questions:
1. Did we pay the tax erroneously one year earlier? If so, what is the remediation possible?
2. I later realized that the section under which we claimed deduction in AY18-19 i.e., 54F seems to be incorrect. Looks like we should have claimed the exemption under section 54 and not section 54F. Is this an issue? That ITR2 was already processed. What can be done now?
Asked 17 days ago in Capital Gains Tax

Dear Sir,

 

The responses to your queries are as under:

 

1) The unutilised amount in CGAS is to be offered for taxation as deemed capital gain in the previous year in which the period of 3 years from the date of transfer expires.

 

Thus, you have to reverse the deduction in next AY, that is AY 2021-22.

 

Since excess tax has been paid in AY 2020-21, a refund can be claimed in respect of the same.

 

2) Yes the deduction ought to have been claimed under section 54. 

Practically, the earlier ITR need not be touched and you may offer the deemed capital gain for taxation next year stating that deduction was claimed under section 54F.

 

However, if you do not want to take any risk, the return for AY 2018-19 needs to be revised. Since the due date is over, application for condonation of delay would be required to be filed and once the delay is condoned, the return can be revised.

 

Best regards,

CA Yogesh Malpani

Yogesh Malpani
CA, Mumbai
43 Answers
3 Consultations

5.0 on 5.0

Dear Sir,

 

1) The application for condonation of delay has to be filed physically with the Jurisdictional Commissioner of Income Tax. There is no option to file it online.

It is not mandatory to file it through a CA. The assessee himself may file it, although it is advisable to get it done from a CA to avoid the obvious hassle.

 

2) As per my practical experience, the order condoning the delay is passed in around a month's time. However, currently due to limited functioning of the tax department due to Covid, it might take a bit longer.

 

3) Yes 

 

Best regards,

CA Yogesh Malpani

 

 

Yogesh Malpani
CA, Mumbai
43 Answers
3 Consultations

5.0 on 5.0

1. For FY 2017-18 return you can file a rectification and later for FY 2019-20 you can file return claim refund and later pay tax for FY 2020-21.

 

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement. You can even book phone consultation for further personal assistance.

Thank you.

Naman Maloo
CA, Jaipur
3703 Answers
40 Consultations

5.0 on 5.0

Hi

 

The time limit of reinvestment is 3 years  in case of construction. So if invest is not done within 3 years, capital gains will be taxable in financial year 2020-21.

 

You can claim the refund of the taxes paid in financial year 2019-20 and pay advance tax for financial year 2020-21.

Lakshita Bhandari
CA, Mumbai
5275 Answers
364 Consultations

5.0 on 5.0

It is not advisable to go for condonation of delay because if you will declare capital gains in financial year 2017-18, you need to pay taxes along with interest which will be a huge amount. however if you pay in the current financial year there would be no interest applicable.

Lakshita Bhandari
CA, Mumbai
5275 Answers
364 Consultations

5.0 on 5.0

- Rectify the ITR for F.Y. 2017-18 and change the section from section 54F to 54. U/s 54F, you were required to deposit net sale consideration i.e. 46 lacs for capital gain exemption of Rs.14.44 lacs and not capital gain amount.

- Either claim the refund of advance tax paid or get the challan corrected to the current financial year.

- After the payment of taxes only, amount from capital gain account will be released subject to the satisfaction of the AO. You will need CA certificate for release of payment from Capital account. confirm it from bank.

- For filing of ITR, please take the assistance of experienced CA. For detailed discussion, please call.

- Don't apply for condonation. 

Vivek Kumar Arora
CA, Delhi
3839 Answers
250 Consultations

5.0 on 5.0

Hi

 

Unutilized capital gain amount under Section 54F had to be charged under Section 45 as income of the previous year, after the expiry of three years from the date of sale of the capital asset as per proviso appended to Section 54F and withdrawal of amount was permitted subject to deduction of tax

capital gains will be taxable in financial year 2020-21.

You can claim the refund for the FY.2019 - 20 

You need to pay advance tax for the FY 2020 -21

 

Karishma Chhajer
CA, Jodhpur
2288 Answers
15 Consultations

5.0 on 5.0

Hi

 

No it is not advisable to go for condonation of delay

Karishma Chhajer
CA, Jodhpur
2288 Answers
15 Consultations

5.0 on 5.0

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