(iStock)
(iStock)

Tax break under 54EC only for property sale

  • You can evaluate claiming exemption under Section 54F, Section 54EE of the Act for investment in a residential house, investment in units of a specified fund
  • Tax should not be levied on the PF balance withdrawn since your service with the earlier employer was terminated due to closure of the business

My long-term profit on unlisted shares after indexation is 8 lakh for the financial year 2018-19. Can I invest in 54EC bonds to save tax?

—Sanjay Pahuja

As per the provisions of the amended Section 54EC of the Income-tax Act, 1961, FY19 onwards, exemption can only be availed under Section 54EC of the Act on long-term capital gains arising out of the sale of land or building.

Accordingly, as you sold unlisted shares in FY19, you will not be eligible to claim exemption for investment in the specified bonds under Section 54EC of the Act.

You can evaluate claiming exemption under Section 54F and Section 54EE of the Act for investment in a residential house and investment in units of a specified fund, respectively, subject to the conditions prescribed therein.

I was with my previous employer from January 2011 to March 2016. I withdrew my provident fund (PF) because my previous company closed down and my new company does not have an EPF scheme since it has only 15 employees . During my stint in the previous company, I was sent abroad for 10 months, during which my company didn’t deposit my salary or PF in India. Is my PF taxable now that I’ve withdrawn it?

—Venkat

Since you did not receive your salary in India for the 10-month period, it is assumed that you relocated abroad on an employment contract with the overseas entity and afterwards you moved back to India on an employment contract with the Indian entity. Accordingly, your continuous period of service with the employer covered under the Indian Provident Fund (PF) Act, for the purpose of evaluating the taxability of PF withdrawal, may be considered as four years and four months.

Even though the total period of service may be considered as less than five years, in light of the exceptions provided, it can be contended that tax should not be levied on the PF balance withdrawn since your service with the earlier employer was terminated due to the closure of the employer’s business.

Another reason in favour of not paying tax is that the balance accumulated in your PF account could not be transferred to your new employer, as it is not a establishment covered by the PF Act.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India

Close