Best option to save taxes on capital gains on sale of property
2 min read.Updated: 01 Sep 2020, 07:37 AM IST Edited By Avneet Kaur
You can claim exemption from long term capital gains if you buy a residential house within two years or construct a house within three year from the date of sale of your flat.
I had sold a residential flat on 6th July 2019 which was bought in 2000. I wish to invest the capital gains in capital gain Bonds to avail tax exemption u/s 54EC. As per the Income Tax laws I was required to make such investment within six months from date of sale, which has already expired. However as I understand the government vide notification no. 35 dated 29 June 2020 has extended the date for making investments to avail capital gains exemption till September 30 this year. I wanted to know whether I can also claim the exemption if I invest in capital gains bonds before 30 Sep 2020 as per the notification issued. If not then do I have any other option available to save the taxes on capital gains? Kindly tell me the best option.
As you rightly said, for claiming exemption under Section 54EC, in respect of long term capital gains arising on sale of a land or building, you are required to invest the indexed capital gains in bonds of some specified institutions within six months from the date of the sale.
You are right about the extension granted by the government for making investments in order to claim exemption of certain long term capital gains. However the extended period for claiming exemption is only applicable for the cases where the last date for making the investments was falling between 20th March 2020 and 29th June 2020.
Your case is not covered under notification no. 35 dated 29th June 2020 as the period of six months had already expired on 5th December 2019 so you can not avail the benefit of extended period for buying the bonds and you may have to pay tax on such long term capital gains.
All is not lost. You still have an option available under Section 54, where you can claim exemption from long term capital gains if you buy a residential house within two years or construct a house within three year from the date of sale of your flat. If you have already bought a residential house within one year before date of sale of the flat, you can still claim the exemption.
The law further provides that in case you are not able to utilise the taxable capital gains for the above stated purposes before the 'due date' of filing of the income tax returns, you have to deposit the taxable capital gains in a ‘Capital Gains Account' to be opened with some authorised banks. The money deposited in capital gains account can be utilised for buying or constructing a residential house within the specified period.
Generally the 'due date' for filing ITR is July 31 for most of the taxpayers but given the pandemic, the due date for filing of ITR for Previous Year 2019-20 (Assessment year 2020-2021) has been extended till November 30. You can deposit the taxable capital gains in the capital gains account before 30th November in case you are not able to utilise the capital gains by buying a house in such a short time.