Tax Query

Hasmukh A Thakkar

Immovable property would qualify as a long-term capital asset if it was held for two years or more from the date of purchase. The gains from sale of flat which is long-term capital asset is eligible for tax exemption under Section 54, upon reinvestment of capital gains in another house property. If the flat at Ahmedabad was sold two years (or later) from the date of its purchase, then long-term capital gains arising on its sale can be claimed exempt upon purchase of a flat in Surat, if the following conditions are also fulfilled: The flat at Surat should be purchased within one year before the sale of Ahmedabad flat or within two years after the date of sale of Ahmedabad flat. If the flat at Surat is not purchased within the tax return due date, then for the purpose of setting aside the funds for reinvestment in a flat in Surat, a deposit needs to be made in a capital gains account scheme (CGAS) at any of the notified banks (such as SBI, Central Bank of India, etc). The amount deposited in CGAS needs to be utilised for the reinvestment in the flat at Surat. In case the amount is not fully utilised for purchase of the flat at Surat or if the flat not purchased within the said timeline, then the unutilised portion is taxable as capital gains. Do note that this exemption is not available for short-term capital gains.

The writer is Partner, Deloitte India

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