Exemption for long term capital gains on sale of all the capital assets including debt mutual funds can be claimed under Section 54F by investing in a residential house property or flats within specified time limits
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Question: As mentioned by you in your article, the Long Term Capital Gains (LTCG) arising out of sale of any capital asset other than a residential house can be claimed as exempt under Section u/s 54F if the sale proceeds are invested in a residential house property, subject to the time limits mentioned therein. This section is silent as to what kind of Long Term Capital Assets are is envisaged when it says "the capital gain arises from the transfer of any long-term capital asset, not being a residential house " I have a sizeable LTCG from debt mutual funds during the last financial year and also going to have the same in the current financial year also. In view of the above, I am keen to know if I can reinvest the LTCG earned from a debt fund in a residential flat within the next 2 years. I also want to know if I can claim the refund for the tax paid on LTCG for the AY 2021-22 in future. - P. Acharya
Answer: For the purpose of claiming exemption under Section 54F all the capital assets except a residential house are covered, for which a separate exemption under Section 54 is available. So exemption for long term capital gains on sale of all the capital assets including debt funds can be claimed under Section 54F by investing in a residential house property within specified time limits.
Please note that for the purpose of claiming exemption from long term capital gains on sale of a residential house property you are required to invest only the amount of capital gains computed, after applying the cost inflation index to the residential house property under Section 54 whereas for claiming exemption in respect of long term capital gains arising on sale of any asset other than a residential house property under Section 54F, you are required to invest not the amount of the capital gains but whole of the amount of net sale consideration received. So in case you wish to avail the exemption under Section 54F, you will have to invest the redemption proceeds of the debt funds in a residential house property.
In case you have already paid taxed on your long term capital gains, there is no provision under the law to claim a refund of such tax even if you buy a house within the specified time period. However in case you are planning to buy/construct a house property within the prescribed time limit, you can deposit, the amount to be invested, in a bank account to be opened under Capital Gains Scheme Account with authorised bank and claim the exemption while filing the ITR to be filed for assessment year 2021-2022. Even in case you have already filed the ITR, you can revise the ITR and claim the refund if you deposit the amount in the above account by 30th September 2021 the extended due date for filing of ITR for financial year 2020-2021.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail and @jainbalwant on Twitter