The Hindu Business Line : Investment options on homecoming

I am a doctor working abroad. My wife, who is also a doctor, works with me. We have been living abroad for nearly ten years now and are planning to return to India for good. We have sold an ancestral property and propose to use the proceeds from the sale to buy land. Are we entitled to exemption towards the purchase of land? Do we have to apply for a permanent account number and if so, do we need to file our returns immediately, while we are still abroad? What options are available for investing the proceeds from sale of ancestral property to enjoy the exemption? R. Rajkumar

You have not indicated what is the ancestral property that you have sold. If it is a residential house, you can get an exemption under Section 54 on reinvestment in another residential house.

If it is not a residential house but a land, you can get exemption under Section 54F on reinvestment in a residential house.

The conditions for claim of exemption and quantum of exemption available under the two sections are as follows:

Section 54

The assessee is an individual or HUF (Hindu undivided family).

The gain arises from the transfer of a residential house being a long-term capital asset.

The income from such asset is chargeable to tax under the head income from house property.

The exemption would be available to the following extent:

If the amount invested is more than or equal to the capital gain, the whole of the capital gain;

If the amount invested is less than the capital gain then to the extent invested

Section 54F

The assessee is an individual or a HUF.

The gain arises from the transfer of a long-term capital asset not being a residential house.

The assessee does not within a period of two years purchase or three years construct any residential house other than the new house.

The assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset.

The quantum exempt will be on the following basis:

If the amount invested is more than or equal to the net consideration then the entire capital gain;

If the amount invested is less than the net consideration then the amount invested x capital gain/net consideration.

You may note that if the amount of capital gain for the purposes of Section 54 or the net consideration for the purposes of Section 54F is used for purchasing a plot and also towards construction of a residential house thereon, the aggregate cost should be taken for determining the quantum of exemption under Section 54/54F.

For this benefit to be available, the acquisition of the plot and also the construction thereon should be completed within the period specified in the sections. In this connection reference may be made to Circular No.667 dated October 18,1993.

Exemption may also be claimed by reinvestment under Section 54EC. The exemption under Section 54EC is available subject to satisfying the following conditions:

The asset transferred is a long-term capital asset.

The investment is in bonds of the National Highway Authority of India or Rural Electrification Corporation.

The bonds are redeemable after a period of three years.

If the exemption should be claimed under section 54EC, the investment should be made before the expiry of six months from the date of transfer of the capital asset. You may also note that none of the bonds are at present open for investment in the National Highway Authority of India or Rural Electrification Corporation.

Section 139A requires a permanent account number to be obtained if the total income exceeds the maximum amount not chargeable to tax which stands at Rs 1,00,000 in case of an individual, Rs 1,35,000 if the person is a woman, resident in India and below the age of 65 years during the previous year and Rs 1,85,000, if the person is resident in India and 65 years or more during the previous year. Depending on your total income you may have to apply for a permanent account number.

You will have to file your return within the time allowed for filing the same under Section 139(1). The time allowed for filing a return in your case is likely to be the July 31 of the relevant assessment year since you have not stated that you have any business income chargeable to tax in India.

You will have to file a return within this time whether or not you are in India. You may authorise any other person to sign the return on your behalf and furnish the same in India.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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