Relief from long term capital gains tax
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Exemptions can be claimed, if the amount is carefully invested writes, R.P.Deshpande
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Many readers have sought details on the relief available on the capital gains tax, which are explained hereafter. While exemptions are available only for long term capital gains, there is no respite from capital gains tax on short term capital gains.
Here are the exemptions available to get relief from capital gains tax:
1. The assessee can claim full exemption for long term capital gains, if such amount is invested in house property, within certain time frame. The permissible time frame is period of 1 year before or 2 years after the date of transfer or new house is constructed within 3 years.
This exemption is available when assessee had one house, which he/she has sold and the capital gain amount is reinvested in another house property.
For example, you had one house owned and were staying in the house. While residing in the owned house, you booked a property with a Builder, which was under construction. You started remitting the purchase price in installments from April 15, 2008 onwards. When the new residence was ready to occupy, you sold your house of stay and moved to new residence by March 10, 2009. In this case entire capital gains aroused on account of selling the old house was invested in the new house, within specified period and therefore you are entitled for exemption from paying capital gains tax.
2. If the capital gains amount is not invested in a new house before the due date of filing of returns, the amount should be invested in the capital gains account scheme of a Nationalized Bank. The amount can be drawn from the account and utilized subsequently towards acquisition of a new house or construction of residential unit, within the prescribed period.
Suppose you have sold your house and utilized a part of capital gains to purchase a plot of land. You may need one to two years time to construct a house on the plot. In such a case, you need to deposit balance capital gains amount in ‘Capital Gains Account Scheme, 1988’ and utilize the amount for the said purpose (construction) within stipulated time frame of three years. You can open such an account in State Bank of India or any one of approved Banks in the form of ‘savings deposit’ or ‘term deposit’.
3. Another important avenue to avoid the instance of capital gains tax is to invest the capital gains amount in certain specified investments under Section 54EC of IT Act. The assessee has to deposit capital gains amount within six months of transfer, to be eligible for the exemption from capital gains tax.
The upper limit for investing in these bonds is Rs. 50 lakh.
The author is the Director of Institute of Home Finance at deshpanderp2007 @gmail.com
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