Capital Gain Exemption if the amount is used for Repayment of Housing Loan
In the earlier issue of The Tax Talk, I read that if there is a Premature withdrawal of an amount from the Senior Citizen Saving Scheme (SCSS) within a period of 5 years, will it be subject to tax? My query is, how can the principal amount be taxable? This would be in violation of basic accounting principles.
Can you please clarify as I happened to close my S.C.S.S. account prematurely recently and worrying about tax implications. [email@example.com]
- Thanks for the query as other senior citizens might be facing similar queries and issues. First of all, it may be noted that investment in SCSS qualifies for the benefit of Section 80C(2)(xxiii) of the Income Tax Act, 1961 subject to an overall maximum cap of Rs. 1.50 Lakh. In short, the deduction amount for investment in any year cannot exceed Rs. 1.50 Lakh.
- The deduction of Rs. 1.50 Lakh as mentioned above is subject to the riders as contained in section 80C(6A) which reads as under:
“80C(6A): If any amount, including interest accrued thereon, is withdrawn by the assessee from his account referred to in clause (xxiii)or clause (xxiv) of sub-section (2), before the expiry of the period of five years from the date of its deposit, the amount so withdrawn shall be deemed to be the income of the assessee of the previous year in which the amount is withdrawn and shall be liable to tax in the assessment year relevant to such previous year.
- Combined reading both above sections will convey that the amount withdrawn will be taxable only if the amount of deposit is claimed as deduction at the time of deposits earlier.
- Taxation in your Specific case:
a) If you have not claimed deduction U/s 80C(2)(xxiii) towards investment in SCSS then nothing (except interest not offered for taxation earlier on accrual basis) would be taxable at the time of withdrawals.
b) If the amount of Rs. 1.50 Lakh or lesser amount is claimed as deduction then Rs. 1.50 Lakh or such lesser amount (along with interest not offered for taxation earlier) would be taxable at the time of withdrawals. For example, if you have invested Rs. 15 Lakh in SCSS in FY 2021-22 and have claimed deduction U/s 80C(2)(xxiii) of Rs. 1.50 Lakh then at the time of withdrawal Rs. 13.50 Lakh of investment will not be liable for taxation.
I have sold a plot of land and want to use the entire sale proceeds to foreclose the home loan of the residential house. The very intention of the sale was to foreclose the outstanding home loan. The sale proceeds fully cover the amount of home loan outstanding as on date. Can I claim exemption of capital gains arising on sale of plot fully utilized to foreclose home loan u/s 54F? [firstname.lastname@example.org]
- Any capital gain arising from sale of the house property or any other capital assets can be saved by the taxpayers by investing the amount for purchase of another house property within a specified time frame. The specified time frame under section 54 and 54F are as under:
a] For purchase:
One year before or two years after the date of sale.
b] For Constructions:
Three years from the date of sale.
- Taxpayers may note that section 54 & 54F explicitly provides for exemption only if there is a purchase or construction within the time period specified hereinabove.
- In your case, it appears that you have already purchased/ constructed the house by availing a housing loan. Now, you intend to utilize the sale proceeds towards repayment of the housing loan availed for purchase or construction of the house property. Exemption U/s 54F would be subject to following conditions:
a) Housing loan taken for purchase of the property:
Capital gain exemption would be available only if you have purchased the house property within one year prior to the sale of your land.
b) Housing loan taken for Construction of the property:
Capital gain exemption would be available only if you have completed the construction of the house property within a specified period of 3 years ‘after’ the sale of your land. For capital gain exemption, construction could have been commenced earlier but its completion has to be there after the sale of the land. [ACIT Vs. Subhash Sevaram Bhavnani (2013) 23 taxmann.com 94 (Ahd ITAT), CIT Vs. Bharti Mishra (2014) 222 Taxman 2(Del HC)], Kapil Kumar Agarwal Vs. DCIT, 178 ITD 0255 (Delhi ITAT), CIT Vs. H.K. Kapoor (1998) 234 ITR 753 (All), & CIT Vs. J.R. Subramanya Bhat, (1987) 165 ITR 571(Kar).
- If you have purchased the house flat which is more than one year prior to sale of your land or if you have completed the construction of the house property prior to sale of your land then you will not be eligible for capital gain exemption even though indirectly the fund is getting utilized towards house property only.
As a senior citizen above 80 years and being an income tax payer sincerely for years by filing IT returns regularly, I wish to bring the following for some clarification. As you know the number of senior citizens is increasing now due to longevity. Most senior citizens enjoy good health even at 85 but many after 75 years of age develop some illness that include dementia, diabetes, heart ailments, kidney infection, mental sickness etc. Besides, many are weak and stay at home. Their mobility, memory become weak and many of them are bed-ridden & cannot move out. Under these circumstances, it is difficult for them to go to banks, offices, to collect required income statements to file IT returns directly or through CAs. These are compelling circumstances. Of course, the IT rules require Returns to be filed. Is there any provision to exempt such senior citizens from filing IT returns? Although online facility, availability of information is available in different generated systems, the problem remains. Kindly enlighten. [email@example.com]
- Finance Act 2021 has inserted a new section 194P which provides immunity from filing income tax returns to few resident senior citizens aged 75 years and above.
- Conditions for exemption under section 194P
a) Senior citizens have pension income and interest income only. Interest income is from the same specified bank in which he is receiving his pension.
b) The senior citizen will submit a declaration in Form No. 12BBA containing all the details mentioned therein to the specified bank. The bank will request proof of deductions and tax exemptions along with the declaration if they choose the old tax regime. If the older citizen chooses the new income tax regime, no investment proof will be required.
- c) The bank is a ‘specified bank’ as notified by the Central Government.
d) Such banks will be responsible for the TDS deduction on all the income of the senior citizens after considering the deductions under Chapter VI-A & rebate under 87A.
e) Once the specified bank, as mentioned above, deducts tax for senior citizens above 75 years of age, there will be no requirement to furnish income tax returns by senior citizens.
CA Naresh Jakhotia
Partner – M/s. SSRPN & Co.
10, Laxmi Vyankatesh Apartment
Telephone Exchange Square
Central Avenue Road
Web : www.ssrpn.com
Phone Nos: (0712)2735479, 6549611
Cell No. : 094228-60300