• Capital gains tax 54b query

Hello,

My father sold an urban agriculture land in July 2023.He transferred the amount to my account before his demise.

I filed his ITR as a legal heir and opened a capital gains account in my name before due date of filing taxes.

Now I want to withdraw the whole amount instead of buying an agricultural land.

Q1. What will be the applicable tax rate 12.5% or 20 %?

Q2. What's the procedure to withdraw the amount from capital gains account to pay the capital gains tax applicable and keep the remaining amount? Bank only allows to withdraw for buying an agricultural land not for paying capital gains tax.

Should I approach AO and ask him to allow me to withdraw the amount so I can pay applicable capital gains tax and keep the remaining amount?
Asked 14 days ago in Capital Gains Tax

  1. Applicable Tax Rate:


    • LTCG Tax (if land held >2 years): 20% (12.5% applies only for sales after July 23, 2024).

    • STCG Tax (if land held ≤2 years): As per your slab rate.

  2. Withdrawal from CGAS:

    • Approach your Assessing Officer (AO) to get permission (Form G) for withdrawal to pay tax.
    • Submit Form G to the bank to release funds.

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
354 Answers
7 Consultations

1. 20% with indexation if it is a long term capital asset

2. First you have to pay the tax and submit the required documents manually to the jurisdictional AO. JAO will issue the closure letter directly to the bank. You can not withdraw from CGAS to pay the taxes

 

For detailed discussion you may opt for phone consultation

 

Vivek Kumar Arora
CA, Delhi
4953 Answers
1106 Consultations

The capital gains tax rate will remain 20% with indexation, as per the law applicable when the land was sold in July 2023. The 12.5% rate applies only to sales made after July 23, 2024, and does not affect earlier transactions, even if the CGAS is withdrawn in July 2025.

 

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

 

 

Shubham Goyal
CA, Delhi
354 Answers
7 Consultations

Q1. Applicable Tax Rate: 12.5% or 20%?

The applicable tax rate on capital gains depends on the nature of the asset and the holding period:

  1. Nature of Asset (Urban Agricultural Land):

    • Since this is urban agricultural land, it is not classified as agricultural land for exemption purposes under Section 2(14) of the Income Tax Act. Instead, it is considered a capital asset, and the sale of this land triggers capital gains tax.

  2. Holding Period:

    • If the land was held for more than 24 months, the gain will be treated as long-term capital gains (LTCG) and taxed at 20% with indexation benefits.
    • If the holding period is 24 months or less, the gain will be treated as short-term capital gains (STCG) and taxed at slab rates applicable to your father.

In most cases of urban agricultural land, 20% tax with indexation is applicable because such assets are usually held for the long term.

Q2. Procedure to Withdraw Funds from Capital Gains Account

  1. Purpose of Capital Gains Account:

    • A Capital Gains Account Scheme (CGAS) is meant for parking funds temporarily until they are used for the intended purpose, such as buying another agricultural land or constructing a house. The bank allows withdrawals only for these specified purposes under the Income Tax Act.

  2. Withdrawals for Paying Tax and Retaining Funds:

    • To withdraw the amount for paying capital gains tax and keeping the balance, you need approval from the Assessing Officer (AO) under Section 119(2)(b). The steps are as follows:


      • Step 1: File an application with your AO explaining the situation, including:

        • Your father's demise and your role as the legal heir.
        • The fact that you filed his ITR and opened the CGAS account in your name.
        • Your intention to withdraw the funds to pay the applicable capital gains tax and use the balance amount as per your discretion.


      • Step 2: Attach relevant documents:

        • Death certificate of your father.
        • Proof of your status as legal heir.
        • Copy of the ITR filed for your father.
        • Bank statements and details of the CGAS account.


      • Step 3: Once approved, present the AO’s approval to the bank to withdraw the amount.

What Happens If You Withdraw Without AO Approval?

  • If you withdraw the funds without using them for the specified purposes, the entire amount becomes taxable as long-term capital gains in the year of withdrawal.
  • However, since you intend to pay the tax and keep the remaining amount, it is advisable to get AO approval to avoid disputes.

Recommendation:


  1. Approach the AO: Submit a formal request to the AO for permission to withdraw the funds for paying taxes.

  2. Tax Payment: Compute the capital gains tax (20% for LTCG or slab rates for STCG) and pay it on time to avoid penalties.

  3. Retain Balance: After approval and tax payment, you can retain the remaining amount.

Damini Agarwal
CA, Bangalore
460 Answers
31 Consultations

 

The capital gains tax rate applicable when unutilized funds in a Capital Gains Account Scheme (CGAS) are deemed as income under Section 54B will depend on the nature of the gains when the asset was sold. Here’s a clarification on your specific query:

Key Points Regarding Section 54B and CGAS

  1. Condition of Section 54B:

    • Section 54B allows exemption from capital gains tax if the proceeds from the sale of agricultural land are reinvested in purchasing new agricultural land within two years from the date of transfer.

  2. What Happens If Funds Are Not Utilized?

    • If the funds deposited in the CGAS are not utilized for the purchase of new agricultural land within the prescribed period, the unutilized amount is deemed as income in the financial year immediately following the expiry of the two-year period.
    • The gains will be taxed under Section 45 as capital gains in the year the two-year period expires (July 2025 in your case).

Capital Gains Tax Rate in This Scenario

  1. Nature of Gains Remains Unchanged:

    • The nature of capital gains—short-term or long-term—is determined at the time of the original transfer of the asset (in July 2023).
    • If the land was held for more than 24 months, it qualifies as long-term capital gains (LTCG) and will continue to be taxed at 20% with indexation benefits, even if deemed income arises in July 2025.
    • If the land was held for 24 months or less, it qualifies as short-term capital gains (STCG) and will be taxed at the transferor's applicable income tax slab rates.

  2. Timing of Taxation:

    • Even though the unutilized amount becomes taxable as income in July 2025, the tax rate applicable remains the same as it would have been at the time of the original sale (2023).

  3. Why Not 12.5%?

    • The 12.5% rate does not apply here. It is not a standard capital gains tax rate for any specific type of asset or situation under the Income Tax Act.

Practical Example

  • Scenario:

    • Land sold in July 2023 for ₹50 lakhs, with indexed cost of ₹30 lakhs.
    • Capital Gains = ₹20 lakhs.
    • Tax deposited in CGAS = ₹20 lakhs.
    • No new agricultural land purchased by July 2025.

  • In July 2025:

    • The unutilized ₹20 lakhs will be deemed as long-term capital gains if the land was held for more than 24 months and taxed at 20% with indexation benefits, just as it would have been in 2023.

Conclusion

If the funds are not utilized by July 2025, the tax rate applicable will be 20% (for LTCG) or the slab rate (for STCG) based on the nature of the original capital gain in 2023. The timing of taxation (2025) does not change the applicable tax rate determined at the time of the original transfer.

Damini Agarwal
CA, Bangalore
460 Answers
31 Consultations

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