Query 1]

Sir, I have gone through Tax Talk dated 30.08.2010 regarding LTCG on sale of flat property.

In that query, only Rs. 5,89,866/-.was recommended for investment to get LTCG exemption u/s 54 Whereas on sale of plot, entire realization was recommended for investment for eligibility of entire amount of exemption u/s 54F.  Kindly clarify by mail and oblige. [] Opinion:

  1. Long term capital gain (LTCG) tax can be saved by claiming an exemption u/s 54 or U/s 54F. Both the sections offer exemption from LTCG, subject to various other stipulations, if the amount is invested for purchase of another residential house property.
  2. Exemption u/s 54 is available if the LTCG has arisen as a result of transfer of long term RESIDENTIAL HOUSE PROPERTY. If the assets transferred is any property other than Residential House Property (e.g., Land/ Plot, Shop, Gold etc) then an exemption can be claimed u/s 54F (and not u/s 54).
  3. For claiming an exemption
    a) U/s 54, investment of LTCG is important. If full LTCG is invested, entire LTCG can be claimed as exempt. Else, only amount invested can be claimed as exempt.
    b) U/s 54F, investment of Net Sale Consideration is important. If net sale consideration is invested, entire LTCG can be claimed as exempt. Else, only proportionate amount of LTCG, as bearing the same ratio as the amount invested bears to the net sale consideration, can be claimed as exempt.

Query 2]
Sir, Can you please furnish accounting entries of deferred taxes for the following transactions:

  1. (a) Depreciation: Depreciation of Rs. 4,000/- as per Companies Act (40% WDV).
    (b) Depreciation: Rs. of Rs. 6,000/- as per IT Act (60% WDV)
    what will be the accounting entry for difference Rs.2,000/- and when it should be passed?

  2. Entry for difference in timing due to Section 43-B of IT Act- 1961 like Bonus, PF, Interest & assuming that they are not paid till balance sheet date? Let us assume amount of Rs. 50,000 /- taken in books of accounts (Bonus, PF & Interest) for arriving at book profit. If say corporate tax is 30%, then what will be entry for deferred tax of Rs.15,000/- (50,000/- @ 30%)?

  3. Also explain what will be the accounting entry in next F.Y. when such deduction is allowed on payment basis under income tax Act. []


  1. Accounting for Deferred Tax on Income is governed by Accounting Standard-22 on “Accounting for Taxes on Income” issued by the Institute of Chartered Accountants of India. AS-22 is introduced to nullify the income tax impact on the expenditure claimed in the Profit & Loss account and corresponding allowability/ disallowability of such expenditure in the computation of total Income as per the Provision of Income Tax Act-1961.
  1. As per the Said AS-22, for the difference in Depreciation under the Companies Act & under the Income Tax Act, no accounting entry is required to be passed for Rs. 2,000/-. However, closing accounting entry for deferred tax of Rs. 618/- (Rs. 2000/- * 30.90%) is required to be passed as follows:
    Profit & Loss A/c—Dr. Rs. 618/-
    Deferred Tax (Liability) A/c —Cr. Rs. 618/-
    (Being accounting entry of deferred tax liability on the depreciation difference of Rs. 2000/- @ 30.90%)
  2. Expenses like PF, Bonus etc disallowable u/s 43B are allowable in the year in which the payment for the same is done.
    a) If the payment of PF/Bonus & other expenses covered by section 43B is/can be done on or before the due date of filing the return of income then no accounting entry for deferred tax would be required.
    b) If the payment of PF/Bonus & other expenses covered by section 43B is not or cannot be done on or before the due date of filing the return of income then the following  closing accounting entry for deferred tax would be required: -.Deferred Tax Asset A/c          Dr.                   15,450/-

            To Profit & Loss Account   Cr.                      15,450/-

(Being deferred tax assets recognized for the timing difference of Rs.50,000/- disallowable u/s 43B of Income Tax Act @ 30.90%).

  1. In any of the subsequent years, when such liability is paid, the aforesaid entry will be reversed.
Query 3]
Sir, I had purchased a row house at Wanadongri in Nagpur. The date of entering into a Registered Agreement to Sale is 01/06/2005 whereas the date of registering Sale Deed is 12/01/2006. I am enjoying a housing loan from HDFC. Outstanding amount of Housing Loan is Rs. 3.50 Lacs. I am availing tax rebate under 80C.
My queries are-
  1. What are income tax implications, if I sell this property right now?
  2. I am constructing another house on the plot owned by my wife, for which, she has availed bank loan. I am the Guarantor for the said Loan. Can I get capital gain exemption if I repay this loan from the sale proceed of row house? []


  1. It may be noted that u/s 80C(5)(iii) if assessee sell the house before the expiry of fiver years from the end of the financial year in which the possession of the property is obtained then
    a) no deduction u/s 80C shall be admissible to such assessee in respect of the year in which transfer is effected AND
    b) the aggregate amount of deductions allowed in earlier years shall be DEEMED to be the income of the assessee of the year in which the property is sold and shall be liable to be taxed accordingly.
    However, such sale does not in any way impact the deduction allowed for interest paid on the housing loan but its only reverses the deduction allowed on the principal portion.
    Effectively, if you sell the house property before 31.03.2011, it may result in additional tax liability on account of additions to current year’s income of the deduction allowed u/s 80C in the earlier years towards principal repayment of housing loan.
  2. Repayment of the Housing loan taken by your wife for construction of house property which is owned by her only will not make you entitled for claiming an exemption u/s 54 even if you are Guarantor to that loan.


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