Dear sirs - asking this question on behalf of my father, a super senior citizen. He sold his house in October 2016. Had capital gains. Invested 50 lacs in National Highway Bonds. Bought a property which will be built up in 2 years. So there is still a balance that needs to be taxed. Question is - when does he pay taxes? In 2017? (Will be an approximate amount, as he does not know the final exact cost of the house as he needs to install immovable fittings / Modular kitchen etc). Can he file after the payment of the new property is finalized, after 2 years? Will there be any penalties incurred? Thanks for your expedient help, in advance.
Dear Sir,
He has to pay taxes before 31 July 2017 and file ITR. He has to put money in capital gain deposit saving account to claim exemption.
We can help in filing ITR and strucring the transaction.
Please feel free to call/ revert in case of any doubts
Thanks and Regards
Abhishek Dugar
CA CS B.Com
Hi,
I would have given more appropriate answer if the type of property sold and the Long-term Capital Gain amount was mentioned. My answer is based on the assumption that your father ("Assessee") has sold a residential house and claiming exemption u/s 54 for constructing another house.
Assessee has already invested in Capital Gain Bonds u/s 54EC. So, assessee gets complete deduction u/s 54EC for the Rs. 50 Lakhs invested.
Now, assessee has to complete construction of the new house within 3 years from the date of sale (i.e by Sep 2019). The amount of capital gain not utilized (Actual Capital Gain less Rs. 50 Lakhs invested in NHAI Bonds less any amount paid towards purchase of land and construction of house thereon) has to be deposited in Capital Gain Account Scheme on or before the due date of Filing Returns (31-Jul-2017 in this case). If the amount is deposited in Capital Gain Accounts Scheme, the assessee can claim full exemption from Capital Gain Tax in current year.
If the construction is not completed within 3 years from the date of sale, then the amount of Capital Gain not utilized as at the end of 3 years (Sep 2019) will be taxed as Capital Gain of that particular year (AY 2020-21 i.e FY 2019-20)
Abhishek - thanks for your answer. The reason I asked the question in the first place was because I had 2 different views from established CA's. One of them said I had to pay by July 31 of 2017, whereas the other gentleman was of the view that no issue, the tax can be payable at the end of all transactions (final purchase of property). Can you please research a bit more? We know about the Capital Gains accounts etc. - this is the only open point. What happens if we do not pay by July 31 of 2017? Is there any penalty? Where / what section does it state that it has to be paid by July 31 of 2017 - so I can show my knowledgeable CA's and get agreement. Please also look at Pradeep Bhat's answer just posted.......Thanks both
Dear Sir,
Yeah, there is a option where you can pay taxes after 3 years of date of sale.
For this, you have to park your entire capital gain amount (after deducting 50lacs exmeption u/s 54E) in a capital gain deposit account.
if the amount not utilized remain in the Capital Gain Deposit Account Scheme even after a specified period of 2/3 years. In short, either taxpayer is not able to finalize the property or provisioned extra amount for property purchase. The 100% of the amount not utilized will be taxed as long term capital for the financial year in which the specific period gets over. In the example mentioned above, i sold the property on 20th Oct 2015. If i am not able to purchase a new property till 19th Oct 2017 or construct a new house till 19th Oct 2018. In this case, the exemption claimed by me for FY 2015-16 will be withdrawn. I need to pay long term capital gain tax during FY 2018-19 on the partial or whole amount that is not utilized.
Please feel free to call/ revert in case of any doubts
Mr. Pradeep - summarizing: Your assumptions on the residential property and claining under section 54 are correct. The property was sold in Oct 2016 for 3.3CR, and 1% TDS was deducted. Subsequently - he put 50 Lac in NH bonds and the balance (2.8Cr) in Capital Gains FD's. Now his ITax return needs to be filed by July 31st, and he can claim exemption on total proceeds for this year. He will file taxes and pay tax due only after getting possession of the property (after 2 years and 6 months). The tax will be due on the unutilized amount only. Please confirm. Thanks and regards.
Yeah. You are correct.
Hi,
The fact about depositing the amount not utilized in Capital Gains Account Scheme on or before the due date of filing Returns is mentioned in sub-section 2 of Section 54.
You have provided only the sale amount and purchase details are not provided. I cannot calculate Capital Gains without that. Assessee need not deposit entire sale proceeds in Capital Gain Account FDs. Assuming the capital gains comes to around 2 Crores, you need not deposit only 1.5 Crores (2 Crores less 50 Lakhs invested in NHAI Bonds). You are free to utilize the money for buying a land and construction of house thereon till you deposit the amount of Capital Gain not utilized in Capital Gain Account. Once amount is deposited in Capital Gain Account, you can use it only for purchase or construction of new house.
Your father is free to do whatever he wants with tax free amount (3.3 Crores less Capital Gain Amount). If he deposits the unutilized Capital Gain amount in Capital Gain Account Scheme on or before 31-Jul-2017 and files IT Returns, he can claim the entire 3.3 Lakhs TDS deducted as Refund (Subject to other taxable income). He has to pay taxes after 3 years on the amount remaining unutilized,if any, in the Capital Gain Account Scheme.
Dear Sir,
There are two issues in your question :
a) Computation of Capital Gain
First of all only capital gain amount is taxable and not total sale proceeds so it is important to note cost of property and date of purchase of property. Based on that gain amount can be derived. If the property is purchased before 01/04/1981 than valuation report as on 01/04/1981 is required to be taken.
b) Tax Working & Investment Working
Secondly whatever capital gain is there you can get upto Rs. 50 Lacs in bond balance amount you need to invest in another house property within next 2 years. Till the time you invest such amount you need to park the same in Capital Gain Account Scheme and it can used only for the purpose of payment. If you do not invest or park this amount in Capital Gain scheme this amount on or before 31st July,17 i.e. return filing due date than such amount shall be subject to tax.
So total amount subject to tax can be
Sale Value - Index cost of Value - Investment in Bond - Amount not invested in new property
For any query you can surely contact me back. I can make correct Capital Gain working and let you know the tax position and amount of investment required along with the period in which you can do investment.
As you have already invested in NH Bonds and in Capital Gains FD, you need not pay any tax now. As you are claiming exemption u/s 54, it is sufficient, if you invest only the LTCG component of the sale proceeds and it is not necessary to invest the entire sale proceeds in the acquisition of the new residential house. Any amount remaining uninvested will be treated as income in the year, in which the investment ought to have been completed.
To sum it up,
1) No need to pay any tax now.
2) Ensure that you invest atleast the capital gains component in the acquisition of the new residential house to claim exemption u/s 54.
3) Pay tax proportionately in case you are not able to invest in full the amount of LTCG in the 3rd year.
Hello Sir,
It appears that the query has been resolved by other experts.
Feel free to get back in case any of your query is unresolved.
Hi,
Tax will be due only on the unutilized amount. Tax is payable only after you receive the possession of the house or within 3 years of the sale of the previous property, whichever is earlier.
In your first question, you had mentioned that you are unaware of the exact cost of acquisition since your father has to invest in modular fittings, etc. Please note that the cost of acquisition eligible for capital gains exemption is only the actual amount invested for purchase of the property or improvement of property. This will not include any modular fittings, etc.
Trust this clarifies your query.
Regards
Keerthiga Padmanabhan
M.Com., CA, LLB
