Limit of Rs. 50 Lakh for investment in Capital Gain Bonds: Confusion & Clarification




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Limit of Rs. 50 Lakh for investment in Capital Gain Bonds: Confusion & Clarification

 

 [Query 1]

Kindly clarify the limit of tax savings under section 54 EC which is 50 Lakh in a financial year at present. If the Long Term Capital Gain (LTCG) is on sale of 2 plots, then whether the limit 50 lacs is per property per financial year? Kindly elaborate with different permissible permutation & combination.

Opinion:

  1. Maximum amount eligible for investment under section 54EC is Rs. 50 Lakh per financial year.
  2. The limit of Rs. 50 Lakh is per financial year and not per plot.
  3. If any person sells more than one plots in any one financial year then the exemption under section 54EC against sale of such plots cannot exceed Rs. 50 Lakh. For example, a person has sold one plot on 1stApril wherein LTCG earned is Rs. 40 Lakh and the another plot is sold on 2nd April wherein the capital gain amount is Rs. 25 Lakh. In such a case, the person can claim capital gain exemption of Rs. 50 Lakh against the LTCG of Rs. 65 Lakh.
  4. For the benefit of readers, let me cover one more example of Mr. Smart who has sold two plots, first on 30thMarch wherein he has earned LTCG of Rs. 40 Lakh and sold another plot on 31st March wherein he has earned LTCG of Rs. 45 Lakh. In such a case, the maximum amount of exemption U/s 54EC could be Rs. 50 Lakh only. It is not permissible for Mr. Smart to invest Rs. 85 Lakh spread over two financial years so as to claim (i.e. some amount on or before 31st March and balance after 31st March).
  5. Now, let us consider another example of Mrs. Smart who has sold two plots, first on 30thMarch 2024 wherein she has earned LTCG of Rs. 40 Lakh and sold another plot on 1st April 2024 wherein she has earned LTCG of Rs. 45 Lakh. In short, Mrs. Smart has a LTCG of Rs. 40 Lakh in FY 2023-24 & Rs. 45 Lakh in FY 2024-25. Mrs. Smart could not invest the amount of LTCG of Rs. 40 Lakh on or before 31st March. The question that might arise is whether capital gain exemption would be admissible if she invests in the next financial year Rs. 40 Lakh of LTCG of FY 2023-24 & also Rs. 45 Lakh of LTCG of FY 2024-25?
    The answer is simply No. The maximum investment permissible in a financial year is Rs. 50 Lakh. Ideally, in such a case, Mrs. Smart should have invested Rs. 40 Lakh in the FY 2023-24 and Rs. 45 Lakh in the next FY 2024-25.

 

 

[Query 2]

I have the following query and request your to please guide and elaborate on the same.

  1. Mr. A purchased a land before 2001 and he entered in to a Joint Development Agreement (JDA) in FY 2006-2007 wherein Mr. A is entitled for around 45% share in the project i.e., 10 flats.
  2. In FY 2007-2008, Mr. A gifted 5 flat (though the construction was not completed at the time of gifting) to his son Mr. B.
  3. The builder completed construction and gave Occupation Certificate (OC) in F.Y 2017-2018.
  4. Mr. B did not pay tax on capital gains in FY 2017-2018.
  5. Mr. B died and his inheritance property transferred to this son Mr. C by will deed.
  6. Mr. A has not paid any tax at the time of signing JDA in FY 2006-17. However, assessment (under section 147) was done in the hands of Mr. A for FY 2007-18 in the year 2014-15 and the Income Tax Officer has calculated  the capital gain in the FY 2006-07 itself at Rs. 2.15 Cr.  Against the assessment order, Mr. A has filed an appeal before CIT (A) who has not admitted the assessee’s claim and dismissed the appeal. Mr. A has not preferred any appeal thereafter and has admitted the addition done by income tax officer during assessment proceeding.
  7. Now Mr. C wants to sell those 5 flats. What will be the cost of acquisition for Mr. C in FY 2023-2024?  Whether the GST paid by Mr. C to the builder at the time of OC will also be deductible while working out capital gain of Mr. C? Please guide.

Opinion:

  1. From the facts provided by you, it appears that the possession was handed over by Mr. A to the Builder in the FY 2006-07 pursuant to Joint Development Agreement (JDA). Against JDA, Mr. A is entitled to receive 10 flats out of which 5 flats are gifted during the construction stage to his son Mr. B.
    Mr. A has not offered any amount for taxation in his Income Tax Return (ITR) for the FY 2006-07.
  2. Since, Mr. A has parted with the possession of the property in the FY 2006-07, Assessing Officer i.e., Income Tax Officer (AO) has considered the same as “Transfer” in the FY 2006-07 and has taxed the income as capital gain. The amount of capital gain is computed by the AO at Rs. 2.15 Cr.
    You may note that the amount of Rs. 2.15 Cr must have been arrived at by AO after reducing the cost of acquisition (after indexation) from the amount of deemed sale consideration. The figure of sale consideration is not mentioned by you in the present query. The same may have been the part of the assessment order against which you had preferred an appeal before Commissioner (Appeal).
  3. The sale consideration as mentioned in the said assessment order will be the cost of acquisition of the 10 flats of Mr. A. Since 50% is gifted by Mr. A to Mr. B, the 50% of the said sale consideration as mentioned hereinabove will be considered as the cost of acquisition in the hands of Mr. B for 5 flats.
  4. No tax triggers in the hands of Mr. B in the year 2017-18 when the builder has handed over the Occupation Certificate (OC).
  5. Similarly, no tax liability arises when Mr. B died & the property is transferred to Mr. C by way of inheritance.
  6. Mr. C wishes to sell the 5 flats now. The cost of acquisition of these 5 flats will be same as the amount as computed in the hands of Mr. B as discussed hereinabove. The date of acquisition of this flat will also be reckoned from FY 2006-07 only.
  7. GST paid by Mr. C to the builder at the time of OC will be deductible while working out the capital gain amount in the hands of Mr. C.

[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com.  Other articles & response to queries are available at www.theTAXtalk.com]




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