Captal Gains
This query is : Resolved
09 September 2010
Person A has sold a property worth rs 8 lacs in PY 2008-09 & purchases bonds u/s 54EC for the whole amount & claims deduction
However in the PY 2009-10 he sells them ( ie before the expiry of 3 yrs) against the requirements of sec 54EC & purchases a land & makes construction of Rs. 700000 & deposits the balance in capital gains
My question is that is he eligilble to claim deduction u/s 54 for such investment or else he shall be charged capital gains tax as he sells the bonds before the expiry of 3yrs
However in the PY 2009-10 he sells them ( ie before the expiry of 3 yrs) against the requirements of sec 54EC & purchases a land & makes construction of Rs. 700000 & deposits the balance in capital gains
My question is that is he eligilble to claim deduction u/s 54 for such investment or else he shall be charged capital gains tax as he sells the bonds before the expiry of 3yrs
11 September 2010
Dear Dhruv,
Here, we will discuss two exemptions, i.e., 54EC and 54F.
First, 54EC, because you sold those Bonds before completing 3 years therefore Earlier claimed exemption claimed on the basis of Bonds purchasing will be taxable.
Second 54F, Here,if you purchase new residential house even then you cannot claim any exemption because requirement of 54F is that sold asset should be Long Term Capital Asset, but sold Bonds are Short Term Capital Asset.
Therefore, no relief available in both cases.
Regards!!!
Dinesh S. Adhikari
Here, we will discuss two exemptions, i.e., 54EC and 54F.
First, 54EC, because you sold those Bonds before completing 3 years therefore Earlier claimed exemption claimed on the basis of Bonds purchasing will be taxable.
Second 54F, Here,if you purchase new residential house even then you cannot claim any exemption because requirement of 54F is that sold asset should be Long Term Capital Asset, but sold Bonds are Short Term Capital Asset.
Therefore, no relief available in both cases.
Regards!!!
Dinesh S. Adhikari
16 September 2010
But the point is that I am ready to presume that the bonds are short term Capital Gain but such sale of bond shall give rise to deemed capital gain ie gain on the original asset shall be taxable in that case the stcg on bonds is short term gain while the gain on original asset is long term gain hence therefore if i am selling the bonds on the face value + int accrued till the date of sale I shall not be taxable for STCG also I shall use the LTCG asset money for purchase of new house (as my previous LTC Asset is taxable again) & as such I shall be eligible for the exemption under 54F
Is This Possible ?
Please Help
Is This Possible ?
Please Help
16 September 2010
Please reply soon
18 July 2024
The situation you're describing involves multiple aspects of capital gains tax and the provisions under sections 54 and 54EC of the Income Tax Act, 1961. Let's break down the scenario and address your questions:
### Scenario Recap:
1. **Sale of Property in PY 2008-09:**
- Person A sold a property for Rs. 8 lakhs.
- Purchased bonds under section 54EC for the entire amount of Rs. 8 lakhs to claim deduction under section 54EC.
2. **Sale of Bonds in PY 2009-10:**
- Sold the 54EC bonds before the expiry of 3 years from their acquisition.
- Purchased land and constructed a property for Rs. 7 lakhs.
- Deposited the remaining balance in capital gains.
### Questions Addressed:
**1. Eligibility for Deduction under Section 54:**
- Section 54 allows for exemption of Long Term Capital Gains (LTCG) arising from the sale of a residential property, if the proceeds are reinvested in another residential property.
- In the case described, Person A initially invested the sale proceeds in 54EC bonds, which is permissible under section 54EC for claiming exemption.
**2. Consequences of Selling 54EC Bonds Early:**
- If the 54EC bonds are sold before 3 years, any gain from the sale of these bonds will be treated as Short Term Capital Gain (STCG) and taxed accordingly.
- The exemption under section 54EC requires the bonds to be held for a minimum of 3 years to avoid the recapture of LTCG on the original property.
**3. Use of Sale Proceeds from 54EC Bonds:**
- After selling the 54EC bonds, Person A used the proceeds to purchase land and construct a property.
- The remaining amount from the original sale proceeds was deposited to cover the capital gains tax liability on the initial property sale.
### Key Points to Consider:
- **Section 54EC:** Selling the 54EC bonds within 3 years triggers recapture of LTCG on the original property. Therefore, the exemption under section 54 for reinvestment in a new residential property would not apply if the bonds are sold prematurely.
- **Section 54F:** This section applies to exemption on LTCG arising from the sale of any asset other than a residential property, provided the proceeds are reinvested in a residential property. In your scenario, since the original investment in 54EC bonds did not qualify due to premature sale, consideration of section 54F may be relevant depending on the nature of the new property acquired.
### Conclusion:
If Person A sells the 54EC bonds before the 3-year holding period, they would lose the exemption under section 54 for the LTCG on the original property sale. The gains from the premature sale of 54EC bonds would be subject to STCG tax.
To potentially claim exemption under section 54F for the LTCG from the original property sale, the reinvestment would need to comply with the provisions of that section, which typically involve purchasing a residential property within the specified time frames and fulfilling other conditions as laid out in the Income Tax Act.
It's crucial to consult with a tax advisor or chartered accountant to assess the specific details of your situation and ensure compliance with the tax laws, as they can provide tailored advice based on the latest regulations and amendments.
### Scenario Recap:
1. **Sale of Property in PY 2008-09:**
- Person A sold a property for Rs. 8 lakhs.
- Purchased bonds under section 54EC for the entire amount of Rs. 8 lakhs to claim deduction under section 54EC.
2. **Sale of Bonds in PY 2009-10:**
- Sold the 54EC bonds before the expiry of 3 years from their acquisition.
- Purchased land and constructed a property for Rs. 7 lakhs.
- Deposited the remaining balance in capital gains.
### Questions Addressed:
**1. Eligibility for Deduction under Section 54:**
- Section 54 allows for exemption of Long Term Capital Gains (LTCG) arising from the sale of a residential property, if the proceeds are reinvested in another residential property.
- In the case described, Person A initially invested the sale proceeds in 54EC bonds, which is permissible under section 54EC for claiming exemption.
**2. Consequences of Selling 54EC Bonds Early:**
- If the 54EC bonds are sold before 3 years, any gain from the sale of these bonds will be treated as Short Term Capital Gain (STCG) and taxed accordingly.
- The exemption under section 54EC requires the bonds to be held for a minimum of 3 years to avoid the recapture of LTCG on the original property.
**3. Use of Sale Proceeds from 54EC Bonds:**
- After selling the 54EC bonds, Person A used the proceeds to purchase land and construct a property.
- The remaining amount from the original sale proceeds was deposited to cover the capital gains tax liability on the initial property sale.
### Key Points to Consider:
- **Section 54EC:** Selling the 54EC bonds within 3 years triggers recapture of LTCG on the original property. Therefore, the exemption under section 54 for reinvestment in a new residential property would not apply if the bonds are sold prematurely.
- **Section 54F:** This section applies to exemption on LTCG arising from the sale of any asset other than a residential property, provided the proceeds are reinvested in a residential property. In your scenario, since the original investment in 54EC bonds did not qualify due to premature sale, consideration of section 54F may be relevant depending on the nature of the new property acquired.
### Conclusion:
If Person A sells the 54EC bonds before the 3-year holding period, they would lose the exemption under section 54 for the LTCG on the original property sale. The gains from the premature sale of 54EC bonds would be subject to STCG tax.
To potentially claim exemption under section 54F for the LTCG from the original property sale, the reinvestment would need to comply with the provisions of that section, which typically involve purchasing a residential property within the specified time frames and fulfilling other conditions as laid out in the Income Tax Act.
It's crucial to consult with a tax advisor or chartered accountant to assess the specific details of your situation and ensure compliance with the tax laws, as they can provide tailored advice based on the latest regulations and amendments.
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