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Mint
03-07-2025
- Business
- Mint
Your questions answered: How I claimed LTCG exemption as an NRI selling agricultural land
Q. I am an NRI. I sold my agricultural land at Pune in November 2023. After consulting my CA., I deposited the indexed capital gain amount in a Capital Gains Account with a nationalised bank as per Sec. 54B to purchase agricultural land within two years from date of sale. i.e. till November-2025. But as of today, I am not in position to purchase agricultural land. Is it possible to invest the entire capital gain amount in non-agriculture assets? Is it also possible to purchase agricultural land after November-2025 without having to pay the capital gain tax? Is there any other way for capital gain tax exemption? If the individual or an HUF (Hindu Undivided Family) wishes to claim exemption for long term capital gains rising on sale of an agricultural land the taxpayer is required to purchase another agricultural land within a period of two years. In case the amount is not utilised for buying agricultural land by the due date of filing of the ITR (Income Tax Return), the tax payer is required to deposit the unutilised amount in a Capital Gains Account under Capital Gains Account Scheme (CGAS) by the due date of filing of ITR. The amount deposited in the Capital Gains Account before the due date of furnishing returns of income along with the amount already utilised is deemed to be the amount utilised for the purpose. However, if the amount is not utilised wholly or partly for the buying of agricultural land, then the amount of capital gains related with the unutilised portion of the deposit in CGAS is charged as the capital gains of the year in which the period of two years expires. You have to buy the agricultural land by November 2025. Please note that under the FEMA (Foreign Exchange Management Act) laws an NRI (Non-Resident Indian) is not allowed to buy agricultural land in India without obtaining prior permission from the Reserve Bank of India. You cannot buy agricultural land after November 2025 for claiming the benefit. As far as claiming exemption by investing in another asset i.e. a residential house under section 54F now is concerned, I think you cannot claim exemption under Section 54F now as you would have already opted for section 54B exemption while filing your ITR for the financial year 2023-2024. In my opinion, the law does not allow you to change the option now and opt for section 54F which allows a longer time of three years from date of sale of the agricultural land. Read all our personal finance stories here. Balwant Jain is a tax and investment expert and can be reached at jainbalwant@ and @jainbalwant on his X handle. Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
Mint
02-07-2025
- Business
- Mint
LTCG exemption: Key rulings that clarify grey areas in Sections 54 and 54F
The Income Tax Act, 1961, provides strategic reliefs to taxpayers aiming to reinvest their long-term capital gains into residential properties. Two critical provisions that govern such exemptions are Section 54 and Section 54F. Understanding the nuances of these provisions is essential, particularly in light of recent amendments and judicial rulings that continue to shape their interpretation. The core difference: Section 54 vs Section 54F Section 54 applies when the capital gain arises from the sale of a residential house, whereas Section 54F is available on the sale of any long-term capital asset ('LTCG") other than a residential house (e.g., shares, land, gold, etc.). In both cases, the reinvestment must be made in residential house property situated in India to avail exemption. Sections 54 and 54F can also be claimed simultaneously, provided the respective conditions are fulfilled. Also Read: How to calculate tax if capital gains are your sole income in FY25 From 2023-24, the maximum exemption is capped at ₹10 crore. This move aims to curb the misuse of exemptions by ultra-high-net-worth individuals. Investment criteria and conditions: Time limits Purchase: Within one year before or two years from the date of transfer. Construction: Within three years from the date of transfer. Capital Gains Account Scheme (CGAS): If the amount is not immediately reinvested, it must be deposited in a CGAS before the due date for filing the income tax return. Transfer of new assets: This exemption is maintained by requiring that the new asset not be transferred within three years of its acquisition or construction. Exemption limits Under Section 54: The exemption is the lesser of the capital gain or the amount invested. Under Section 54F: The exemption is proportional, based on the net consideration reinvested: Exemption = Capital Gain × (Amount Invested ÷ Net Sale Consideration) Also Read: Capital gains on equities: Here's all you need to know when filing tax returns this year Judicial rulings: Clarifying the grey areas While the legal provisions appear straightforward, their implementation has often required judicial intervention. Key rulings include: Purchase in spouse's name: Eligible for exemption. In CIT v. Kamal Wahal, the Delhi high court held that the exemption cannot be denied merely because the legal title of the new residential property is in the spouse's name, as long as the funds belong to the assessee. Investment in children's name: Exemption is not allowed. In Prakash v. ITO, the Bombay high court denied the exemption as the beneficial ownership was considered to have passed to the children, defeating the legislative intent of the provision. Property outside India: Exemption is not available if the new asset is located outside India. Incomplete construction: Still eligible for exemption. In CIT v. Sardarmal Kothari, the Madras high court clarified that completion of construction is not mandatory; timely investment is the critical requirement under Section 54F. Multiple flats as one residential house: Allowed, if used as a single home. In CIT v. Gita Duggal, the Delhi high court ruled that where multiple units are part of a common structure and serve a unified residential purpose, they qualify as 'a residential house" for the purpose of exemption. Repayment of housing loan for new residential house: Treated as valid investment for exemption purposes. Delay in registration: Exemption is allowed. In Siva Jyothi Palam v. ACIT, the ITAT Visakhapatnam ruled that procedural delays in registration should not defeat substantive compliance with the law. Exemption cannot be denied if payment and possession are within time, even if registration is delayed. Conclusion Sections 54 and 54F continue to be vital planning avenues for taxpayers liquidating long-term assets. However, these provisions demand timely execution, accurate documentation, and sometimes even judicial guidance for interpretation. Also Read: Who can avail the indexation benefit on property sale and is it even worth it? The judiciary has repeatedly favoured substance over form, focusing on the taxpayer's intent and adherence to time limits rather than procedural lapses. However, caution is warranted. With increased scrutiny and potential litigation, aligning the declared sale consideration with the stamp duty value is critical to avoid tax litigation. With growing litigation around capital gains exemptions, professional advice is strongly recommended. Hitesh Kumar and Deepak Kapoor are chartered accountants. The article reflects the authors' views based on current tax laws and judicial precedents as of the date of publication. Readers are advised to consult with tax professionals before taking any action.
Mint
05-05-2025
- Business
- Mint
What is the tax rate on capital gains made in 2023 but withdrawn from CGAS now?
—Name withheld on request 1) As per the income-tax provisions, any long-term capital gain (LTCG) arising on transfer of a capital asset is taxable in the previous year in which such transfer takes place. Section 54F of the Income-tax Act, 1961 allows a taxpayer to claim exemption on LTCG (arising on transfer of capital asset not being a residential house property, referred as 'original asset'), if the net consideration is reinvested in one residential property (referred as 'new asset') in India, subject to satisfaction of other specified conditions. In order to claim the exemption, such reinvestment must be done as per timelines below: -Purchase of a new asset: within one year before or two years after the date of transfer of the original asset; - Construction new asset: Within three years from the date of transfer of the original asset. If the taxpayer is unable to reinvest the net consideration in a new asset before the due date for filing the original tax return, the taxpayer may deposit the unutilized amount in the capital gains account (under CGAS) before filing their tax return and claim the exemption under section 54F. However, in case the funds deposited in CGAS are not utilized for the prescribed purpose within the above-specified time period, then the LTCG not taxed earlier becomes taxable as the income of the fiscal year in which the specified period of three years expires. In this case, as the date of transfer of the original asset (unlisted shares) was 1 December 2023, the period of three years to utilize the funds invested in the CGAS account will expire on 1 December 2026. Thus, even though you may not intend to purchase/construct the new asset currently, the reversal of the LTCG exemption claimed earlier in FY 2023-24 shall get triggered only upon expiry of the three-year period–FY 2026-27. In such a case, LTCG claimed as exempt in FY 2023-24 shall be considered as LTCG for FY 2026-27 and subject to tax in FY 2026-27. As per the current provisions under Section 48 and Section 112 of the Income Tax Act, in the instant case, as the date of transfer of the original asset (unlisted shares) was 1 December 2023, which is before 23 July 2024 (when the LTCG tax rate was changed), the long-term capital gain will be taxed in FY 2026-27 at the earlier rate of 20% plus applicable surcharge and cess. 2) Effective FY 2023-24, the maximum surcharge leviable for LTCG on sale of unlisted shares is capped at 15% under both the tax regimes. 3) As per specified rule of Capital Account Scheme, 1988, to close the capital gain account, the individual depositor needs to make an application to the deposit office in the specified form along with the approval from the jurisdictional assessing officer of the depositor. There are no prescribed instructions/guidelines for the manner and grant of this approval. One needs to submit an application before the AO, providing the detail of the capital asset sold, computation of LTCG earned from the sale of the capital asset, date of deposit of the amount in CGAS, date of expiry of the specified period for investment in the new property, along with corresponding backup documents. The AO may seek any additional information or clarification and process the application accordingly. Also, there is no prescribed timeline to complete the withdrawal of money after receiving the approval from the AO. This is more of a practical consideration and may vary from case to case. Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. First Published: 5 May 2025, 06:00 AM IST
