Can I reinvest gains from property sale?
1 min read 19 Feb 2023, 10:43 PM ISTThe maximum investment that can be made by a taxpayer in long-term specified asset for this purpose is ₹50 lakh.
PremiumI recently sold a house and made a capital gain of ₹60 lakh. I do not wish to invest in a house property and would like to save tax by investing in 54EC bonds. Can I invest ₹50 lakh in such bonds and pay tax on the balance ₹10 lakh?
—Anu
We understand that you intend to invest the Long-Term Capital Gain (LTCG) from sale of house property (‘Original asset’), in long-term specified asset (being NHAI bonds, REC bonds, PFCL bonds, IRFCL bonds or any other bonds as may be specified by the central government) under section 54EC of the Income-tax Act, 1961, to claim deduction against such LTCG. In regard to the same, following relevant provisions of the Act merit attention:
Section 54EC of the Act provides for exemption against the capital gain arising from the sale of a long-term capital asset (being land or building or both). This exemption is available (subject to fulfillment of specified conditions) where the amount of Capital Gain arising from sale of original asset is invested in long-term specified asset within a period of 6 months from the date of such transfer.
The maximum investment that can be made by a taxpayer in long-term specified asset for this purpose is ₹50 lakh.
The exemption will be available in proportion to the Capital Gain invested. In case, the investment in long-term specified asset is less than the LTCG (arising from the transfer of the original asset), so much of the exemption shall be allowed proportionately, i.e., in same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the LTCG.
We understand that you have earned LTCG of ₹60 lakh by sale of the original asset. Accordingly, you may invest ₹50 lakh in long-term specified asset to claim the exemption under section 54EC of the Act. An exemption of ₹50 lakh shall be allowed towards such investment.
The balance LTCG of ₹10 lakh shall be taxable as per provisions of section 112 of the Act at 20% (plus applicable surcharge and cess).
In case the long term specified assets are sold or converted into money within five years of its acquisition as applicable, amount of exemption shall be considered to be LTCG for the year in which such sale / conversion is done.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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