When one house property is sold and an investment is made in another, an exemption is available under Section 54. This exemption is available if the house property sold is a long-term capital asset and subject to certain other conditions as mentioned below.
- The time limit for making the investment is as follows:
- In case of purchase of another house property, within one year before or two years after the date of transfer of the original property.
- In case of construction of another house property, the construction must be completed within three years after the date of transfer of the original property.
- Tax Exemption is also available under Section 54EC on transfer of a long-term capital asset and on investment in bonds of the Nabard, National Highway Authority India or the Rural Electrification Corporation or SIDBI, which are redeemable after a period of three years provided the investment is made in these bonds within six months from the date of transfer of the original asset.
- If the asset is a long-term capital asset, the capital gain is computed by the indexed cost of acquisition and improvement.
- The cost of acquisition of an asset will also include the registration charges and brokerage charges incurred for acquiring the same. Sale deed stamp paper cost and allied expenses, broker’s receipt may be sufficient proof as expenses.
- The cost of repairs and renovation can also be reduced in arriving at the capital gain as cost of improvement. In respect of expenditure on repairs or renovation, either bills or the certificate from a registered valuer may be produced
- In all these cases where an exemption is to be obtained, if the investment in the new asset cannot be made before the due date for filing the return of income for the relevant assessment year, the assessee will be required to make an investment in a capital gains account scheme in respect of such sums for which exemption is claimed, but cannot be invested in the new asset. For example, if one house was sold in Jan 2010 and there was capital gain , then the capital gain amount is needed to be invested in a capital gains account scheme in any notified bank like SBI etc. before 31.07.2010. In other words, if the due date for furnishing the return for the assessment year 2010-11 for the assessee is 31.07.2010, the investment must be made before 31.07.2010 in the capital gains account scheme for the purpose of obtaining the exemption.
Types of Capital Gain Saving Account
There are two types of accounts for depositing the un-utilized amount.
Whenever the tax payer is interested to open an account in terms of Capital Gains Accounts Scheme, the depositor shall make an application in Form No A and exercise the option whether the amount is to be deposited in Account A or in Account B. It is also possible for the assessee to deposit the money in both the accounts.
- Account A is like the saving bank account in a bank where withdrawals are permitted from time to time. Account A has least interest than Account B. Withdrawals are permissible.
- If any taxpayer wants to make the investment for a fixed term, he may deposit the un-utilized amount in ‘Account B’. Account B’s interest is cumulative and is reinvested. Withdrawals are permissible after transfer of the amount to Account A.
The assessee will apply in form no. C as and when the money is required to be withdrawn for the purposes of making payment for the residential property.After receiving the application the bank shall permit the withdrawal of the amount. For amount of withdrawal exceeds Rs 25,000, the bank will make the payment by way of crossed demand draft drawn in favour of the person to whom the depositor intends to make the payment.
Tax payers should also note that other than the initial withdrawal later on when the withdrawals are made by the tax payers, they shall furnish in Form No D in duplicate, the details regarding the manner and the extent of utilizing of the amount in respect of the immediately preceding withdrawal. The bank after receiving two copies of Form D from the account holder will retain one copy and return the other copy to the tax payer.
The scheme further provides that the amount which has been withdrawn should be utilized for purchase or construction of the property within 60 days from the date of such withdrawal. The facility of nomination is also available to the deposit holder by filling up Form No E.
Finally, when the property has been purchased or the construction has been completed and now the tax payer desires to close his Capital Gains Account Scheme then he shall make an application with the approval of the assessing officer. The application for closure of the account will be in Form G.
Where to Open Capital Gain Account Saving?
- The account under Capital Gains Accounts Scheme cannot be opened in all the branches and with all the banks. The government has identified the following 28 banks to accept the deposit under Capital Gains Accounts Scheme 1988.
- Some of these banks are: State Bank of India, Central Bank of India, Bank of India, Punjab National Bank, Bank of Baroda, UCO Bank, Canara Bank, United Bank of India, Dena Bank, Syndicate Bank, Union Bank of India, Allahabad Bank, Indian Bank, Bank of Maharashtra , Indian Overseas Bank, Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab & Sind Bank & Vijaya Bank.
- All branches of these banks except the rural branches are authorized to receive the deposit and maintain account under Capital Gains Accounts Scheme, 1988. Other than the above, no other bank is authorized to accept the deposit under Capital Gains Accounts Scheme.
- There is no provision in Income Tax Act for extending the term of the capital gains account scheme. If within three years from the date of sale of the original property, you do not complete construction of the other residential house or if within two years from the date of sale of the original property you do not purchase other residential house, the capital gain which was earlier exempt because of investment in the capital gains account scheme will be chargeable to tax in the year in which the period of three years expires.
C. R. Venkata Ramani