There won’t be any tax implications on insurance compensation

If the wrecked vehicle is a personal asset and not a depreciable asset used in business, there won't be any tax implication on the compensation

I had an accident recently and the vehicle was a total loss and claim was settled accordingly. Is it possible to get refund of the RTO tax paid? The vehicle was registered at Gandhinagar, Gujarat. The insurance company has paid me Insured Declared Value (IDV amount) inclusive of scrap value. Vehicle has been considered as Constructive Total Loss (CTL). Vehicle was bought on 28 July 2016, accident date is 5 April 2017. I have also bought a new vehicle.

—Bhavesh Shah

Assuming the vehicle in question was a personal asset held by you (i.e. not a depreciable asset used in a business), there ought not to be any income tax implications to you in respect of the compensation you have received from your insurer. You may approach the RTO to address your query on refund of the RTO taxes.

I purchased a property in October 2010 and registry value is Rs28 lakh. My stamp duty charges were Rs1.12 lakh. I paid the brokerage charges as Rs1 lakh. Now I am selling this property at Rs63 lakh. My brokerage charges will be Rs3 lakh.

I have an outstanding home loan of Rs20.50 lakh against this property which I will pay from the sale amount. What will be the capital gain tax?

—Vivek Sood

The gain arising from the transfer of your property will attract Long-Term Capital Gains (LTCG) tax, since you have held this property for more than 24 months. .

The LTCG will be calculated as follows:

Step 1: Calculate net sale consideration by reducing selling costs from sale proceeds – Rs60,00,000 (i.e. Rs63,00,000 minus the brokerage of Rs3,00,000

Step 2: Calculate Cost of acquisition which will include purchase costs, stamp duty and brokerage costs- Rs30,12,000

Step 3: Calculate the indexed cost of acquisition to consider the impact of inflation– Cost of acquisition * Cost Inflation Index (CII) in the year of sale/CII in the year of acquisition – Rs30,12,000*272/167 = Rs49,05,772

Step 4: Calculate the LTCG by reducing indexed cost of acquisition from the net sale consideration–Rs10,94,228

The LTCG arising from the sale is taxable at the rate of 20.60 % (plus applicable surcharge)The LTCG could be claimed exempt from tax if the gain is re-invested in the specified manner (eg: re-investment in another property or purchase of Government notified bonds) within the timelines and in the manner prescribed.

I have a question regarding availability of exemption from capital gains tax under IT Act, 1961. An agriculturalist sold a land and received part consideration first and deposited the same in capital gains saving account before due date of filing of return. The remaining part payment was received after due date of filing of return and thus the same was deposited later, i.e., after the due date of filing of return. Can the exemption be availed in respect of the amount deposited after due date of filing of return as the reason being late receipt of the sale consideration?

—Rucha Sharma

The law envisages an extended timeline for the deposit in the Capital Gains Account Scheme (CGAS), as required, only in cases where the original asset was compulsorily acquired and there is a delay in the receipt of compensation awarded for such compulsory acquisition.

Therefore, where there is a delay in the deposit of money into the CGAS on account of delayed receipt of sale consideration, the taxpayer may need to use personal funds to deposit into the CGAS. Any claim for tax exemption in respect of the delayed deposit into CGAS may be disputed by the tax authorities and the grant of exemption would then be at the discretion of the tax officer concerned.

Parizad Sirwalla is partner (tax), KPMG.

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