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.
