1.85cr plot sold, 1.4cr new plot bought - save or invest remaining?

Ans: In India, you can utilize the long-term capital gains from the sale of a house to purchase a plot of land and potentially avail certain tax benefits. The provisions related to the reinvestment of long-term capital gains are covered under Section 54F and Section 54EC of the Income Tax Act, 1961. Here's an overview of these provisions:

Section 54F - Exemption on Investment in Residential Property: Under this section, if you have sold a residential property (other than an inherited property) and have made a long-term capital gain, you can claim an exemption from capital gains tax by investing the proceeds in a new residential property. However, there are specific conditions that need to be met:

a. Investment in Residential Property: The entire amount of the long-term capital gains must be invested in purchasing a new residential property within one year before or two years after the date of sale of the original property. Alternatively, you can construct a residential property within three years from the sale of the original property.

b. Ownership and Lock-in Period: The newly purchased or constructed residential property should be held for a minimum of three years. If you sell or transfer the new property within this lock-in period, the capital gains exemption claimed under Section 54F will be revoked.

c. Restrictions on Multiple Properties: It is important to note that if you own more than one residential property, except for the new property being purchased or constructed, you will not be eligible to claim the exemption under Section 54F.

Section 54EC - Investment in Specified Bonds: Under this section, if you have made long-term capital gains from the sale of any asset, including a house, you can claim an exemption by investing the capital gains amount in specified bonds issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC). Here are some key points:

a. Investment in Bonds: The entire long-term capital gains amount must be invested in these specified bonds within six months from the date of sale of the original asset.

b. Lock-in Period: The specified bonds have a lock-in period of five years. You cannot transfer or sell the bonds before the completion of this period.

c. Limit on Investment: There is a maximum limit of Rs. 50 lakh for investment under Section 54EC in a financial year. If the capital gains amount exceeds this limit, you can only claim an exemption up to Rs. 50 lakh.

Ans: Unutilised amount of gain is required to be deposited in Capital Gain Account scheme

Ans: As per the provisions of the Income Tax Act in India, if you have made a capital gain from the sale of a residential property and wish to claim exemption under Section 54F by investing in a new residential property, the following rules apply:

- You can claim exemption on the capital gains if you invest the entire amount of capital gains in a new residential property. In your case, the total capital gain is Rs. 15.00 lakh, and you have utilized Rs. 9.00 lakh to purchase the residential plot. To claim the exemption, you must utilize the entire Rs. 15.00 lakh amount for the construction of the new house.

- If you are unable to invest the entire capital gains amount before the due date of filing your income tax return (usually July 31st of the assessment year), you can deposit the unutilized amount in a Capital Gain Account Scheme (CGAS) before the due date to claim the exemption. In your case, if you haven't utilized the entire Rs. 15.00 lakh for purchasing the residential plot and construction has not yet begun, you must deposit the unutilized amount of Rs. 6.00 lakh in the CGAS.

- In your Income Tax Return for AY 2023-2024, you need to show the capital gains from the sale of the residential property, which is Rs. 15.00 lakh, and then claim the exemption under Section 54F for the amount utilized to purchase the residential plot and construct the new house (i.e., Rs. 9.00 lakh). Additionally, you should mention that the remaining Rs. 6.00 lakh is deposited in the CGAS for the purpose of constructing the new house to claim the complete exemption.

Please note that to avail of the exemption under Section 54F, you need to fulfill all the conditions mentioned in the section, such as not owning more than one residential house (excluding the new one) on the date of transfer of the original property and not purchasing any other residential property within a specified time frame.

Ans: Since you have already registered the new flat and fully committed the capital gains towards its purchase, you do not need to open a Capital Gains Account Scheme (CGAS) account. However, there are some key points to consider:

1. Conditions for Capital Gains Exemption (Section 54 or 54F)
You must invest the capital gains in a new residential property within 2 years (for resale property) or within 3 years (for under-construction property).
Since you have registered the property, your investment is considered "committed" even if payments are made in phases.
The Income Tax Department typically considers the date of agreement/registration as the date of investment, not the date of actual payment.
2. When is a CGAS Account Needed?
A CGAS account is required only if the capital gains money is not used before the Income Tax Return (ITR) filing deadline (July 31st) of the respective financial year.
Since your funds are already allocated towards the flat purchase, you are not required to park them in CGAS, even if disbursement is pending.
3. Ensure Proper Documentation
Keep records of the flat registration, builder agreement, and payment schedule.
Retain proofs of capital gains utilization from the sale proceeds.
If assessed, you can justify that the gains were committed for the property purchase.
Final Insights
Since you have already registered the new flat and the payment schedule is fixed, you do not need a CGAS account. However, ensure that all payments are completed within 3 years to comply with exemption rules. Keep all documents handy in case of future tax scrutiny.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
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