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Anil Rego |373 Answers |Ask -Follow

Financial Planner - Answered on Nov 23, 2021

Anil Rego is the founder of Right Horizons, a financial and wealth management firm. He has 20 years of experience in the field of personal finance.
He’s an expert in income tax and wealth management.
He has completed his CFA/MBA from the ICFAI Business School.... more

Question by Wizzy on Nov 23, 2021Hindi

Hope you are well. I am a regular reader of your Rediff column.

I will appreciate if you can throw light on the following:

I sold my house on March 31, 2020, and plan to reinvest the gains in another house that I will purchase in FY 21.

While these gains will not be enough, I will have to liquidate some of my investments in shares and mutual funds to meet the obligation.

My doubts are:

1. If I sell shares and mutual funds to fund the house purchase, will the long term gains be exempt from LTCG (sec 54), meaning I would not have to pay tax on the long term gains that I would make on the shares/MF units.

2. Are the short term gains on MF units exempt from tax if utilised for house purchase?

3. I have made some long term losses (in shares) in 2020-2021 (previous FY). How do I adjust these while filing my I-T returns this year?

Can I carry these to the current FY and adjust with the house purchase somewhere?

Ans: To answer your questions:

1. You cannot take benefit of both section 54 (arising out of the sale of a house) and 54F (arising out of the sale of any other asset) at the same time.

You can choose to use either of them, depending on which gives you a higher benefit.

2. No, you cannot reinvest short term capital gains into a house purchase to save tax. Set-off is only allowed for long term capital gains.

Thus, your short term gains on equities will be taxed at 15 per cent and debt short term gains will be taxed as per your tax slab. Surcharge will also be as applicable.

3. The long term capital loss can be set off against the long term capital gains in the previous year.

If you do not have sufficient long term gains in that year, then you can carry forward this capital loss up to eight years.

But there is no provision to adjust with the house purchase because that was in the previous financial year.

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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Anil Rego |373 Answers |Ask -Follow

Financial Planner - Answered on Nov 03, 2021

Question by Yogesh - Nov 03, 2021Hindi

I read your article on saving capital gain tax on sale of mutual funds and shares on Rediff.com. I have one query please. Request that you solve it. I sold my mutual funds, from five or six funds, in the financial year 2020-2021. These investments were with me for many years and I needed the money for my newly constructed home. Can I save the capital gains tax by showing evidence of construction of the home, which is in my name and it the only home I have? Can I save the long-term tax by showing that the proceeds were used in newly constructed home?

Ans: There is exemption of long-term equity shares/mutual funds under Section 54F, when the sale proceeds are utilised for the purchase of a new residential property.

The limit of exemption is = Amount Reinvested* capital gains/net consideration

Conditions:

The new residential property should be purchased one year before or within two years after -- three years, if the property under construction -- the sale of the capital asset whose capital gains is being reinvested.
No additional residential property should be purchased within one year (three years in case of house under construction) from the date of sale of shares/mutual funds.
The new residential property purchased should not be sold within three years of its purchase/construction

If these conditions are not met, the exemption available on the sale of shares shall be withdrawn and it shall be charged to tax as capital gains in the year of default.

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Tax Expert - Answered on Nov 17, 2022

Question by Swadhin - Nov 17, 2022Hindi

I am a senior citizen retired pensioner. I had intention to sell my both properties located in one town and to invest in one property in another town where I wanted to settle in my retired life. I wanted that the sale proceeds of my two properties should be almost same as the purchase value of a single property in another town to settle there. I had bought a property in 2015 at Rs 40 lakh in my single name and sold in Feb 2022 at Rs 52 lakh. The buyer deducted 1% TDS and filled in form 26QB and I got form 16(B) from buyer and details of TDS are seen reflected in my Form-26AS. Thereafter, my 2nd property that I had bought @Rs 7.3 lakh 20 years back, was attempted to dispose, but did not materialise till now. Anyway, I bought a 5-yr-old jointly owned property from a couple at Rs 80 lakh in June 2022 and deducted 1% TDS (@0.5% from each owner), filled in Form 26QB and provided form 16(B) to the sellers. So, I invested the sale proceeds of my 1st house 'within a year' of its disposal, in buying a house from Long Term Capital Gain point of view. My IT Return for AY 2022-23 was filed in July 2022 and it got approved. The 1% TDS deducted by buyer on my 1st property sale got refunded/ adjusted. I am still trying to sell my 2nd property 'within one year' of buying the June, 2022 property. I want to do this to take benefit of Long Term Capital Gain Tax. I want to know whether I am going to get the IT benefit by selling my 2nd property 'within one year' of purchase of my June 2022 property ? I am more eager to know how sale of 1st property in financial year 2021-22 (Feb.'22), purchase of a property in FY 2022-23 (June'22) and again sale (proposed) of 2nd property, (all within 2 years from LTCG point of view) are shown in my next IT Return (AY2023-24). I am eager to hear from you, Sir!

Ans: As you must be aware, if person wants save tax on capital gain, person should acquire another residential house within a period of three years from the date of transfer of the old house or should construct a residential house, within a period of one year before or two years after the date of transfer of old house.

With effect from Assessment Year 2021-22, the benefit in respect of investment made in two residential house properties is available. The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long-term capital gains does not exceed Rs 2 crore.

If assessee exercisesoption, he shall not be entitled to exercise this option again for the same or any other assessment year.

Benefit will be lower of following:

Amount of capital gains arising on transfer of residential house; or
Amount invested in purchase/construction of new residential house property

If till the date of filing the return of income, the capital gain arising on transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains Deposit Accounts Scheme, 1988.

So in your case, if you satisfy all the prescribed conditions (including acquiring new property within 3 years, depositing unutilised amount in capital gain deposit account and disclosure is made regarding same in ITR of AY 2022-23 & AY 2023-24); you will get IT benefit.

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