I recently sold a flat that I had purchased 18 years ago for ₹4.95 lakh, at ₹52 lakh. I have certain doubts on the income tax liability on the sale proceeds as listed below. Please give point-wise clarification:

a)Can you give details as to how LTCG (long-term capital gains) will be arrived at?

b) As of now, I plan to buy another apartment using the sale proceeds. The cost of the new property shall be ₹48 lakh, if I go for a two-bedroom apartment, or ₹64 lakh for a three-bedroom one.

In the above scenarios, what would be the tax effects?

c) If I do not buy a property within a year, and after a year of sale, decide not to buy any property, can I invest in tax-saving bonds to get exemption from LTCG tax?

d) The sale proceeds is now lying in my SB account. Should I transfer it into CGAS (Capital Gains Account Scheme); if so, the whole sale proceeds or the LTCG only? Is there a time limit within which it should be transferred into CGAS?

Reader A

a) Gains arising from sale of a long-term capital asset is taxable as LTCG. Your flat is a long-term capital asset as it was held for more than two years. Accordingly, long-term capital gains will be computed as under:

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The amount of LTCG will be ₹38,14,000.

b) As per Section 54 of the Income Tax Act, any LTCG arising to an individual from the sale of a residential house property shall be exempt from tax, if such LTCG is invested in (i) purchase of another residential property in India either one year before or two years after the date of sale, or (ii) constructed property within three years after the date of sale.

Further, for claiming such exemption, the new property purchased should not be transferred within a period of three years from the date of acquisition.

Since the cost of the two- as well as the three-bedroom property is higher than the amount of LTCG computed above, you could claim full LTCG tax exemption by investing the gains in either the two- or the three-bedroom flat.

c) As per Section 54EC, in order to claim exemption, LTCG should be invested in specified bonds up to a maximum of ₹50 lakh within a period of six months from the date of transfer of the house property. Hence, you can claim exemption by investing in bonds only when such investments are made within six months from the date of transfer of the house property. The option of depositing the capital gains in CGAS is not available for exemption in this category.

d) LTCG could be deposited in a CGAS account for the purpose of utilising the money in making the requisite investments. However, such deposits should be made on or before the due date of filing the tax return.

If you are planning to invest/construct a new residential property, it is recommended to open the CGAS account before the due date of filing the return. Please note that if such amount is not utilised for the purchase/construction of the residential property within the specified period — two years for purchase, or three years for construction of house property — it shall be treated as LTCG in the year of transfer.

Please clarify if the accounts of a private trust created for the benefit of minor children are subject to audit before submission of ITR and the income received can be accumulated for future use.

Palaniswamy

Under the I-T Act, if the total income of a private trust exceeds the maximum threshold limit of ₹2.5 lakh (for FY 2018-19), the account needs to be audited as per Section 12A (b) of the I-T Act before filing ITR.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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