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In 2019, I sold a residential plot that I had purchased in 2006. The entire gains from the sale were reinvested in a residential flat I purchased in 2020. I want to sell this flat as soon as possible. What will be the tax on capital gains, and can I save tax by reinvesting profits again in a different property?

—Name withheld on request

 

We have assumed that capital gains arising from the sale of the residential plot was claimed exempt from tax under Section 54F of the Income Tax Act.

As per provisions of Section 54F, where the new asset, i.e. flat purchased in 2020, is transferred by you after a period of two years from the date of its purchase, the amount of capital gain will be chargeable to tax as long-term capital gains (LTCG) in the tax year in which it is transferred, and you would need to discharge the applicable income tax on the same accordingly. Tax exemption on capital gains can be sought in any of the following ways: by investing the LTCG in a new residential house situated in India; by investing LTCG in specified bonds or by investing net consideration in equity shares of an eligible startup. If the flat is sold within 24 months from the acquisition date, capital gains from the sale would be taxable as short-term capital gains at applicable slab rates (as increased by surcharge, if applicable, and education cess). No rollover exemption is available against STCG.

 

I have a public provident fund (PPF) account with the Central Bank of India since 2000. I extended it for five years, which ended in March 2020. Due to covid restrictions, I could not extend it for another five years before March, but want to do it now. Can I extend this PPF account for another five years? If yes, what is the process? If no, can I keep the accumulated surplus in my existing PPF account and earn interest without contributing? Or will I have to close and withdraw all the money?

—Ingrid Ferrao

 

Considering the covid-19 situation, we advise that you check with your bank for any waivers or extensions on term of PPF accounts. Further, as per the provisions of the PPF scheme, on completion of any block period of five years, the PPF account holder may continue to hold the account without further deposits and the account shall continue to earn interest till it is closed.

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

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