What is the tax on unused CGAS amount if deposited before 23 July 2024?
If funds deposited in CGAS are not utilized for purchase/construction of a house within the prescribed timelines, then the LTCG not taxed earlier becomes taxable
I had sold a property in March 2024 and deposited ₹57 lakh capital gains from it in a Capital Gain Account Scheme (CGAS) account in May 2024. I am moving abroad soon, so I won't be buying a house with the deposited gains. How much tax do I have to pay now? I am being told I have to pay 12.5% and not 20%. Is that true? (As that would mean I have to pay much lower tax on a sale that I did much before this new rule came.)
It is assumed that you sold a residential house (‘original asset’) in March 2024 (i.e., in FY 2023-24) and earned long-term capital gains (LTCG). You deposited the LTCG in a Capital Gain Account Scheme (‘CGAS’) in May 2024 and claimed a deduction under section 54 of the Income Tax Act, 1961 (‘the Act’), in your tax return for FY 2023-24. However, now you do not intend to purchase a house anymore, considering your relocation overseas.
Impact of Finance Act 2024
As per the Act, in case the funds deposited in CGAS are not utilized for purchase/construction of a house within the prescribed timelines, then the LTCG not taxed earlier becomes taxable as the income of the financial year in which the period of three years from the date of transfer of the original asset expires. In your case, as the original asset was sold in March 2024, that period of three years expires in March 2027.
Thus, the reversal of the LTCG deduction claimed earlier shall get triggered only in March 2027 (i.e. in FY 2026-27).
In such a case, LTCG claimed as exempt in FY 2023-24 shall be considered as LTCG for FY 2026-27 and subjected to tax the same year. The Finance Act 2024 introduced a lower LTCG tax rate of 12.5% (without indexation) for transfer of assets made on or after 23 July 2024. For any transfers prior to 23 July 2024, the LTCG tax rate of 20% (with indexation) continues to apply. In your case, since the original asset was sold in March 2024 (i.e., before 23 July 2024), the LTCG tax rate in FY 2026-27 should likely continue to be the earlier tax rate of 20% + applicable surcharge and cess.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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