Query 1]

  1. My father, aged 71 years, sold his flat for Rs. 12,50,000/- in the month of June-2011 [Market value being Rs. 14,51,000/-].
  2. The flat was purchased by him in May-1999 for Rs. 2,25,000/- (Market value at the time of purchase was Rs. 3,57,000/-. Stamp duty paid was Rs. 6,250/- & Registration fee paid was Rs. 3,590/- in May-1999

I shall be highly thankful if you can kindly give the amount of capital gain & ways of saving the tax thereon? By what time, we should deposit the LTCG amount in the capital gain account scheme? Kindly explain the capital gain Deposit Account scheme. []


  1. Computing LTCG:

    Cost Inflation Index (CII) for the relevant F.Y. 1999-2000 & F.Y. 2011-12 are “389” & “785” respectively. The indexed cost of acquisition of the flat is Rs. 4,73,906/- i.e., Rs. (2,25,000+ 6,250/- + 3,590/- ) * 785/389. Long term capital gain shall be Rs. 9,77,094/- (i.e., Rs. 14,51,000 – 4,73,906).

  2. Taxability of LTCG & Exemption:

    LTCG is taxable @ 20% u/s 112 of the Income Tax Act-1961. However, your father can save LCTG tax by opting for an exemption u/s 54 or U/s 54EC, as under: –
    i) Exemption Under Section 54:
    Invest the amount of Long term Capital Gain from sale of flat (i.e., amount of Rs. 9,77,094/-) for purchase of another house property within a period of 2 years or construct a house within 3 years period  from the date of transfer of the flat. In case the amount is not utilized as aforesaid for purchase/ construction before the due date of filing the return of income for the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank.

    ii) Exemption Under Section 54EC:

    One can invest the amount of Long term Capital Gain in Specified bonds issued by the Rural Electrification Corporation (REC) or National Highway Authority of India (NHAI) within a period of 6 months from the date of transfer of asset to get exemption under this section.


    a] Although under section 54/54F, the assessee is given 2 years to purchase the house property or 3 years for construction of the house property, but the capital gain on transfer of the original assets is taxable in the previous year in which the transfer took place. The return of income of that previous year is to be submit by the specified date. Hence, the assessee will have to take a decision for the purchase/ construction of the house property before the date of furnishing of the return otherwise the capital gain would be taxable.
    To avoid the above situation, the Income Tax Act has specified an alternative in the form of a Deposit under the Capital Gain Deposit Accounts Scheme-1988.
    The amount of the capital gain, which is not utilized by the assessee for purchase or constructions of the new house before the date of furnishing the return of income, should be deposited by him under the Capital Gain Accounts Scheme, before the DUE DATE of furnishing the return. After Deposits, the amount already utilized by the assessee for purchase/ constructions of the new house, along with the amount so deposited, shall be eligible for exemption under section 54/54F in the year in which LTCG has arisen..

    b] Types of Accounts:

    There are two types of accounts in which deposit can be make:
    a] Deposit Account-A – This is a saving account.
    b] Deposit Account-B- This is a term deposit account.

    c] Where Accounts can be open:

    The account can be open in any State Bank of India or any bank which is authorize for this scheme. For this purpose, one has to fill up and submit the Form A in the bank and deposit the money in the account.

    d] Withdrawing Money from the Account:

    From savings account , the money can be withdrawn by filing Form C with the Bank. However, in case of withdrawal other than initial withdrawal, Form D is required to be submitted to the Bank in duplicates. In case of withdrawal from Account Type-B, firstly it has to be converted into Type A by filing Form B and then all the methods of withdrawal of money from account A shall follow.

    e] Utilization of the amount of withdrawal:

    The amount withdrew has to be spend only for the purpose for which it was deposit as per respective provision under which capital gains arisen. There is also time limit of sixty days from the date of withdrawal within which it has to be spend. The balance, if any, has to be deposit in the bank.

    f] Closing the Account:

    The depositor will get the approval from his assessing officer in Form G and submit it to the bank.

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