Extension of the period of claiming Capital Gain Exemption: An Eyewash


Extension of the period of claiming Capital Gain Exemption: An Eyewash

The Covid-19 pandemic and resultant restrictions have resulted in genuine hardship to certain taxpayers who could not avail the benefits or failed to comply with the statutory requirements within the stipulated time frame. One such difficulty was with regard to the capital gain exemptions. The time limit is very important for capital gain exemption & its violation often results in the denial of exemption.

CBDT vide its Circular No. 12/2021 dated 25.06.2021 has provided concession from capital gain tax by relaxing the period of investment, deposit, acquisition, purchase, construction etc under section 54 to 54GB. By point No. 7 of the said Circular, the period of investment for capital gain exemption was extended to 30th September 2021 if the last date of investment/construction/ etc was in between 1st April, 2021 to 29th September 2021 (both days inclusive).

Now, the CBDT has issued the first circular of 2023 for the benefit of various categories of taxpayers who were otherwise covered by Point No. 7 of the Circular No. 12/2021. The period of investment which was earlier extended to 30th September 2021 is now further extended to 31st March 2023.

As a result of Circular No. 1/2023 read with Circular No. 12/2021, the period of purchase/ construction/investment etc which was expiring in between 1st April 2021 to 28th February 2022 is now stretched to 31st March 2023. In short, the person can invest the amount for purchase/construction, etc till 31st March 2023 and can enjoy the capital gain exemption. The question arises as to who will be benefitted by this first circular of 2023 recently issued by the CBDT. The circular though issued with a good intention would remain eyewash and may not benefit the taxpayers at large. Let us see how.


Provision related to Capital Gain Exemption:

  1. Any profit arising from transfer of land, building, gold, or any other capital assets is subject to income tax as “Capital Gain”. Taxpayers have options to save the tax arising from transfer of Long Term Capital Assets by claiming an exemption under various provisions of the Income Tax Act-1961. The most commonly used provisions for individuals & HUF are section 54, Section 54F or Section 54EC.
  2. Section 54 & Section 54F:
    Both this section offers exemption on the condition that the taxpayers invest the amount for purchase or construction of another residential house property within a prescribed time frame, as under:
    i] For purchase:
    One year before or two years after the date of Sale/Transfer.
    ii] For Constructions:
    Three years from the date of Sale/Transfer.
  3. Exemption U/s 54EC:
    Taxpayers can save Long Term Capital Gain (LTCG) arising from sale of immovable property by making investment in the specified capital gain bonds within a period of 6 months from the date of transfer of capital assets.
  4. The time limit is very important for capital gain exemption & its violation often results in its denial. There are numerous instances of denial due to non-adherence to the strict time limit for exemption. Taxpayers need to ensure that the purchase/construction or investment has been done within the prescribed period of 6 months, 2 years to 3 years.
  5. CBDT Circular No. 1/2023 & 12/2021:
    This period of 6 months, 2 years or 3 years, if it was in between 1st April 2021 to 28th February 2022, then the taxpayers will now be able to get the benefit if they make the investment till 31st March 2023.
  6. Present Circular (No. 1/2023) Vs. Earlier Circular (No. 12/2021):
    Earlier, the relaxation was given for certain compliances which were falling in between 1st April 2021 to 29th September 2021. Now, the relaxation period is stretched & covering the period from 1st April 2021 to 28th February 2022. Earlier, investment was required to be done till 30th September 2021 & now the same has been extended to 31st March 2023.

Why present Circular may not benefit the Taxpayers:

  1. The due date of filing income tax return for the FY 2021-22 (AY 2022-23) was 31stJuly for generalized categories of taxpayers or 30th October for a few select categories of the taxpayers in business /covered by audit provision.
  2. The taxpayers must have already filed the return for the FY 2021-22 & those taxpayers who have failed to utilize the opportunity of investment/ exemption till 30thSeptember 2021, for any reason, must have paid the tax by filing the income tax return within original due date or within the due date of filing belated income tax return.
  3. In short, the due date for the FY 2021-22 is already over and the taxpayers are not allowed to file even the belated or revised income tax return. The last deadline to file the belated or revised return for the FY 2021-22 was 31st December 2022 whereas the present circular No. 1/2023 is issued 6th January 2023.
  4. Though there is a new concept of filing “Updated Return” for the FY 2021-22 till 31stMarch 2025, however it is of no use for the taxpayers in the present case. Updated return can be filed only if it is beneficial to the income tax department & is not allowed to be used to claim benefits or concessions. It cannot be filed if (a) it has the effect of decreasing the total tax liability determined on the basis of return furnished earlier or (b) if it results in refund or (c) increases the refund due.
  5. Though the CBDT intends to remove the hardship & offer the benefit to the genuine taxpayers, the timing of the circular doesn’t permit it. The circular won’t be of any use to the genuine taxpayers who have already filed the return & paid the tax.
  6. Only beneficiaries from the present circular could be those taxpayers who have not filed their income tax returns or who have not correctly incorporated the capital gain income in the ITR filed. In either case, they were not deserving & honest taxpayers.

What can CBDT do to give the benefit of the circular to the Taxpayers?

The circular intends to remove the hardship & offer the benefit to the genuine taxpayers. CBDT may issue another circular to extend the period of filing Belated return U/s 139(4) & Revised Return U/s 139(5) for such categories of taxpayers who wish to claim the benefit of exemption as a result of present circular No. 1/2023.

[Readers may forward their feedback & queries at taxtalknew@gmail.comOther articles & response to queries are available at www.theTAXtalk.com]

CA Naresh Jakhotia
Partner – M/s. SSRPN & Co.
10, Laxmi Vyankatesh Apartment
Telephone Exchange Square
Central Avenue Road