Advance Tax, Long Term Capital Gains and Section 54F exemption

This query is : Resolved

Jay Gandhi (Querist)
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14 February 2024 Hello Tax experts,

My query is related to the interplay of Advance Tax, Long Term Capital Gains and Section 54F exemption for some recent financial transactions.

I sold shares in Jan 2024 and earned Long Term Capital Gains > Rs. 1 lakh. I plan to invest the entire sale proceeds in a residential property to avail LTCG tax exemption under Sec 54F.

1. So, do i need to pay advance tax on the LTCG ( @ 10% of LTCG) in March 2024 quarter to avoid interest/penalty under Sec 234A/B/C?

2. If I have to pay advance tax by Mar 2024, it means that i have effectively paid the LTCG tax to IT dept, and in future I'll have to seek refund of it when I apply for Sec 54F exemption. Is this understanding correct? If not, please correct me.

3. If i skip paying advance tax by Mar 2024 and deposit entire sale proceeds into Capital Gains Account Scheme (CGAS) by 31 July 2024, will i still be charged interest/penalty under Sec 234A/B/C?

4. Any other ways by which I can eliminate the need to pay taxes upfront/block my money whether in form of Advance tax, CGAS deposits, Sec 54F exemption etc.

Requesting genuine advice from the experts on this forum and thanking them in advance for their valuable time and advice.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 Here's a detailed response to your queries regarding Advance Tax, Long Term Capital Gains (LTCG), and Section 54F exemption:

1. **Advance Tax on LTCG:**
- Yes, you are required to pay Advance Tax on your LTCG from the sale of shares if the tax liability on your LTCG exceeds Rs. 10,000 after considering TDS (if any). Advance Tax is typically paid in installments throughout the financial year. For LTCG, the installment due dates are typically 15th March, 15th June, 15th September, and 15th December.
- If you do not pay Advance Tax by the due dates and your total tax liability exceeds Rs. 10,000, you may be liable to pay interest under Section 234B and Section 234C of the Income Tax Act.

2. **Seeking Refund after Sec 54F Exemption:**
- If you intend to claim exemption under Section 54F by investing the entire LTCG amount in a residential property, you need to deposit the sale proceeds into a Capital Gains Account Scheme (CGAS) before the due date of filing your income tax return (typically 31st July of the assessment year).
- You can claim the exemption under Section 54F in your income tax return for the relevant assessment year (AY) after the investment is made within the stipulated time frame.
- Any Advance Tax paid on LTCG will be adjusted against your total tax liability for the year. If you have paid excess Advance Tax, you can claim a refund while filing your tax return.

3. **Interest/Penalty if CGAS is Deposited by 31st July:**
- If you deposit the entire LTCG amount into CGAS by 31st July of the assessment year (AY), you may not attract interest under Section 234A (for delay in filing return), Section 234B (for default in payment of advance tax), or Section 234C (deferment of advance tax).
- However, to avoid any interest or penalty, it's crucial to ensure compliance with the timelines and conditions laid out under Section 54F and related provisions.

4. **Other Considerations:**
- Ensure that the investment in the residential property meets the conditions specified under Section 54F to claim exemption fully.
- Consult with a tax advisor or chartered accountant to assess your specific situation comprehensively and to optimize tax planning strategies.
- Consider the timing of the investment in the residential property to align with the timelines specified under Section 54F and for claiming exemption in your income tax return.

In summary, paying Advance Tax on LTCG ensures compliance with tax laws and helps avoid interest or penalties. Depositing the LTCG amount into CGAS within the specified time frame allows you to claim the exemption under Section 54F. It's advisable to plan these transactions carefully and seek professional advice to maximize tax benefits while ensuring full compliance with legal requirements.