PremiumIn case, the assessee is unable to purchase or construct the new house till the date of filing the original return of income, the net consideration not utilized to purchase or construct new house shall be required to be deposited in Capital Gains Deposit Account Scheme with a specified bank by the due date of filing of the original tax return.
I sold my residential land for ₹50 lakh in January 2023. I had bought it for ₹2.15 lakh in April 2004. To avoid capital gains tax, I intend to invest the entire amount in buying a new house within next 6-7 months. Can I park the sale proceeds as FD in my SBI account till then or is it mandatory to open capital gains account to keep this money? If yes, what is the maximum time by which it needs to be opened.
— Krishna Kumar Trivedi
We understand that you intend to invest the Long-Term Capital Gain (‘LTCG’) from sale of residential land (‘Original asset) in new residential house property to claim deduction against the LTCG under section 54F of the Income-tax Act, 1961.
Section 54F of the act provides for exemption against the capital gain arising from the sale of a long-term capital asset (not being a residential house). This exemption is available (subject to fulfilment of specified conditions) where the amount of net consideration arising from such sale is either invested to purchase another residential house within a year before or two years of the transfer of original asset, or the same is invested to construct a new house within three years of the transfer of original asset. The exemption will be available in proportion to the net consideration invested.
In case, the assessee is unable to purchase or construct the new house till the date of filing the original return of income, the net consideration not utilized (in whole or part) to purchase or construct new house shall be required to be deposited in Capital Gains Deposit Account Scheme with a specified bank by the due date of filing of the original tax return. The new house can be purchased or constructed by withdrawing the amount from the account within the specified time limit of 2 years or 3 years, as applicable.
In the instant case, we note that the original asset, i.e., residential land was sold in January 2023 (i.e., FY 2022-23). Thus, in order to claim exemption, the net consideration needs to be invested in purchase / construction of a new residential property within a period of 2 years / 3 years from the date of transfer of original asset (being January 2023).
Further, in case the net consideration is not re-invested till the date of furnishing the return under section 139 of the Act, then such amount can be deposited before the due date of filing tax return under section 139(1) of the Act, in a specified Capital Gain Account Scheme (CGAS) bank account (and not as a Fixed Deposit) with authorized banks and utilized in the manner prescribed, to avail of the deduction.
Assuming that you are not required to get your books of accounts audited under any law, due date of filing tax return for subject financial year i.e., FY 2022-23 under section 139(1) will be 31 July 2023. Accordingly, any amount of net consideration which remains uninvested in the purchase / construction of the new house, shall be required to be deposited in CGAS of a specified bank before 31 July 2023, in order to be eligible to claim exemption under section 54F of the Act.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
