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TAX TUTORIAL

TAX TUTORIAL. PRACTICAL & TECHNICAL ASPECTS OF ASSESSMENT WORK CAPITAL GAINS By K.Suresh, ITO. CAPITAL GAIN – SECTION 54. Following conditions should be satisfied to claim the benefit of section 54 :- The benefit of section 54 is available only to an individual or HUF.

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TAX TUTORIAL

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  1. TAX TUTORIAL PRACTICAL & TECHNICAL ASPECTS OF ASSESSMENT WORK CAPITAL GAINS By K.Suresh, ITO

  2. CAPITAL GAIN – SECTION 54 • Following conditions should be satisfied to claim the benefit of section 54 :- • The benefit of section 54 is available only to an individual or HUF. • The asset transferred should be a long-term capital asset, being a residential house property.

  3. SECTION 54- BASIC CONDITIONS • Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house.

  4. EXEMPTION FOR ONE HOUSE • With effect from assessment year 2015-16 exemption can be claimed only in respect of one residential house property purchased/ constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only. • No exemption can be claimed in respect of house purchased outside India.

  5. WITHDRAWAL OF EXEMPTION • If a taxpayer purchases/constructs a house and claims exemption under section 54 and then transfers the new house within a period of 3 years from the date of its acquisition/ completion of construction, then the benefit granted under section 54 will be withdrawn. • Ie. if after claiming exemption under section 54, the new house should not be sold before a period of 3 years from the date of its purchase/completion of construction.

  6. LONG TERM CAPITAL GAIN • DEDUCTION U/S 54 • DEDUCTION U/S 54 F • PROPORTIONATE ALLOWABILITY U/S 54 F • ALLOWABLE FOR ONE PROPERTY • INDEXED COST OF IMPROVEMENT • VALUATION REPORT

  7. DEDUCTION U/S 54 • Res. Plot No 212, Sector 28, Gurgaon : • Full value of consideration : 2,00,92,800/- • Less: Index Cost of acquisition: 52,71,259/- • ___________ • : 1,48,21,541/- • Less: Exempt u/s 54 F : 1,48,21,154/- • (value of new property:1.64 cr)____________ • Long Term Capital Gain : NIL

  8. Sec 54F(1)(a) and 54F(1)(b) • Particulars Amount (INR) • A. Full Value of Consideration (SALE) 2,00,92,800 • B. Cost of the asset sold (post indexation) 52,71,259 • C. Long Term Capital Gain (A-B) 1,48,21,541 • D. Cost of property purchased for claiming exemption 1,64,22,827 • E. Proportionate exemption as per Section 54F(1)(b) : •  Proportionate exemption as per Section 54F(1)(b) : •  1,48,21,541 X 1,64,22,827 • -------------- = 1,24,14,370 1,24,14,370 2,00,92,800 • F. Long Term Capital Gains (Post exemption)(C-E) 27,07,171 •   ( IF PURCHASE VALUE OF PROPERTY IS LESS THAN THE TOTAL SALE CONSIDERATION – PROPERTIONATE DEDUCTION U/S 54 F IS ALLOWED).

  9. CAPITAL GAINS A/C SCHEME, 1988 • Capital gains arise when the consideration received on transfer or sale of a property is more than its indexed cost. • The amount of capital gains that is not appropriated by an assessee towards the purchase of another property within one year from the date of transfer of the original property, or that is not utilised by him for the purchase or construction of a new property before the date of furnishing the return of income, should be deposited by him in a specified nationalised bank.

  10. CAPITAL GAINS ACCOUNT • The amount should be invested in a ‘Capital Gains Account Scheme’ under the Capital Gains Account Scheme, 1988. • The deposits should be made in one lump sum or in installments at any time. The amount should be deposited before the due date for filing income tax returns.

  11. CAPITAL GAINS ACCOUNT SCHEME • For example, if a person derives long-term capital gain on April 10, 2010, in that event he must make the investment in acquiring new residential property before one year or within two years from the date of sale or when the said property is proposed to be constructed then within three years from the date of sale.

  12. CAPITAL GAINS A/C SCHEME • In a situation where such purchase or construction is not completed by July 31, 2011 (due date of filing of ITR) in that event the money must be deposited on or before July 31, 2011, that is the last date of filing the income tax return in terms of the Capital Gains Accounts Scheme.

  13. BENEFIT OF SCHEME • Benefit of exemption under Long Term Capital Gain is allowable only in cases where the Investments are made in purchase of properties as envisaged in the Act ; and • The deposits are made with the concerned bank under the Capital Gains Accounts Scheme only and not in ordinary savings bank account.

  14. L T C G Tax • In case the assessee deposits the amount in the Capital Gains Account Scheme but does not utilise the amount deposited for the purchase or construction of a residential house within the specified period, the amount not so utilised shall be charged as Capital Gains of the year in which the period of 3 years is completed from the date of sale of the Original Asset and it will be Long Term Capital Gain of that Financial Year.

  15. CBDT CIRCULAR No 743 dated 6.5.1996 • In the event of death of an Individual before the stipulated period ( 3 years), the unutilized amount would not be chargeable to tax in the hands of the legal heirs of the deceased individual, since such unutilized amount is not income but is a part of the estate devolving upon them.

  16. SECTION 54 EC • Capital Gains from the transfer of any Long Term Capital Asset are exempt u/s 54 EC if the assessee has within a period of 6 months after the due date of such transfer invested the capital gain in long term sepcified bonds as notified by the Govt. for a minimum period of 3 years.

  17. BONDS LOCK IN PERIOD • In case where the Long Term specified asset (Bonds) is transferred or converted into money at any time within a period of 3 years from the date of its acquisition, the amount of Capital Gain exempt u/s 54 EC shall be deemed to be long term capital gain of the previous year in which the Long Term specified asset is transferred or converted into money.

  18. QUANTUM OF DEDUCTION • These specified Bonds are usually issued by Rural Electrification Corporation Ltd. (REC) and National Highways Authority of India (NHAI) and the Interest Rate offered is usually 6% (3 years). • Interest on such bonds is taxable. • Capital Gains shall be exempt if it is invested in the Long Term Specified assets subject to a maximum limit of Rs 50 lacs within a period of 6 months from the date of such transfer.

  19. CBDT CIRCULAR NO 667 dated 18.10.1993 • Whether, in cases where the residential house is constructed within the specified period, the cost of such residential house can be taken to include the cost of the plot also : • 1. Sections 54 and 54F provide for a deduction in cases where an assessee has, within a period of one year before or two years after the date on which the transfer of a capital asset takes place, purchased, or has within a period of three years after that date constructed, a residential house.  The quantum of deduction is itself dependent upon the cost of such new asset.  It has been represented to the Board that the cost of construction of the residential house should be taken to include the cost of the plot as, in a situation of purchase of any house property, the consideration paid generally includes the consideration for the plot also. • 2. The Board has examined the issue whether, in cases where the residential house is constructed within the specified period, the cost of such residential house can be taken to include the cost of the plot also.  The Board are of the view that the cost of the land is an integral part of the cost of the residential house, whether purchased or built.  Accordingly, if the amount of capital gain for the purposes of section 54, and the net consideration for the purposes of section 54F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54/54F, provided that the acquisition of plot and also the construction thereon, are completed within the period specified in these sections. • Circular : No. 667, dated 18-10-1993.

  20. SECTION 50 C - SELLER • “Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be • deemed to be the full value of the consideration received or accruing as a result of such transfer.”

  21. SECTION 56(2)(Vii) - BUYER • Where any immovable property is received for a consideration which is less than the stamp duty by an amount exceeding Rs 50,000/-, the difference between the stamp duty value and the consideration shall be chargeable to tax in the hands of the recipient (Indl./HUF) as Income from Other Sources.

  22. SECTION 54 B – Agricultural Land • The benefit of section 54B is available only to an individual or a HUF. • The asset transferred should be agricultural land. The land may be a long-term capital asset or short-term capital asset. • The agricultural land should be used by the individual or his parents for agricultural purpose at least for a period of two years immediately preceding the date of transfer.

  23. SECTION 54 B • Within a period of two years from the date of transfer of old land the taxpayer should acquire another agricultural land. As per Section 10(37), no capital gain would be chargeable to tax in case of an individual or HUF if agricultural land is compulsorily acquired under any law and the consideration of which is approved by the Central Government or RBI and received on or after 01-04-2004.

  24. DO SERVICE TO TAXPAYERS Thank You K.Suresh,ITO

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