Subject to various other terms / stipulations, Tax on Long Term Capital Gain (LTCG) arising from the transfer of plot or urban agricultural land can be saved u/s 54F if the sale consideration is used for purchase of a residential house property within a prescribed period. The time limit prescribed for the purpose is:
For purchase:
One year before or two years from the date of Transfer.
For Constructions:
Three years from the date of Transfer.
It may be noted that although section 54F offers the time period of 2 years for purchase & 3 years for construction, the return of income is required to be filed before the specified date which is much shorter than the time period granted by Section 54F. If investment for purchase/ construction is not done by the tax payer before the due date of return filing, the amount need to be isolated by depositing it in the Capital Gain Deposit Accounts Scheme-1988 (CGDAS). Readers who wish to claim an exemption u/s 54F may note that if the amount is not invested for purchase/construction before the DUE DATE of furnishing the return of income, then it should be deposited under the CGDAS, before the DUE DATE of furnishing the return. After Deposit, the amount already utilized by the tax payer for purchase/ constructions of the new house along with the amount so deposited, shall be eligible for exemption under section 54F in the year in which LTCG has arisen.
[Consequence where the amount deposited in the capital gain deposit account scheme is not utilized for the purchase or the construction of a residential house property within the specified period:
In this case, the amount not so utilized shall be charged as capital gain of the year in which the period of 3 years from the date of LTCG expires and it will be taxable as LTCG of that year. The assessee then shall be eligible to withdraw the amount from the scheme. As per scheme, he is required to submit an application in Form G after getting the approval of the Assessing Officer.]
With above basic idea, it may be noted that temporary parking of the funds in fixed deposits/ bonds / post office certificates after the due date of furnishing the return of income, may obstructs your exemption claim u/s 54F. If you have to claim an exemption u/s 54F, you have to choose CGDAS as an investment tool for temporary investments of the funds.
One year before or two years from the date of Transfer.
For Constructions:
Three years from the date of Transfer.
It may be noted that although section 54F offers the time period of 2 years for purchase & 3 years for construction, the return of income is required to be filed before the specified date which is much shorter than the time period granted by Section 54F. If investment for purchase/ construction is not done by the tax payer before the due date of return filing, the amount need to be isolated by depositing it in the Capital Gain Deposit Accounts Scheme-1988 (CGDAS). Readers who wish to claim an exemption u/s 54F may note that if the amount is not invested for purchase/construction before the DUE DATE of furnishing the return of income, then it should be deposited under the CGDAS, before the DUE DATE of furnishing the return. After Deposit, the amount already utilized by the tax payer for purchase/ constructions of the new house along with the amount so deposited, shall be eligible for exemption under section 54F in the year in which LTCG has arisen.
[Consequence where the amount deposited in the capital gain deposit account scheme is not utilized for the purchase or the construction of a residential house property within the specified period:
In this case, the amount not so utilized shall be charged as capital gain of the year in which the period of 3 years from the date of LTCG expires and it will be taxable as LTCG of that year. The assessee then shall be eligible to withdraw the amount from the scheme. As per scheme, he is required to submit an application in Form G after getting the approval of the Assessing Officer.]
With above basic idea, it may be noted that temporary parking of the funds in fixed deposits/ bonds / post office certificates after the due date of furnishing the return of income, may obstructs your exemption claim u/s 54F. If you have to claim an exemption u/s 54F, you have to choose CGDAS as an investment tool for temporary investments of the funds.
Source: The Hitwada
