Do you have any personal income tax query?
Mihir Tanna, Associate Director, S K Patodia & Associates (external link), a chartered accountants firm that offers consultancy, audit and tax services, will answer your queries.
Please mail your queries at email@example.com with the subject line Ask Mihir.
Arun Subramaniam: Sir, if my capital gain after indexation for sale of residential property in current financial year is Rs 67 lakh, can I invest Rs 50 lakh in tax saving bonds this year, deposit Rs 17 lakh in capital gains account, and deposit the remaining in tax saver bond from that account in the next financial year? Please advise.
Mihir Tanna: No, to avail the benefit of specified bonds, Investment must be made within 6 months from date of transfer of asset (i.e. residential property) and maximum exemption of Rs 50 lakh is available.
Option of investing in a Capital Gains Account is available in case you plan to invest an amount of Long Term Capital Gain earned from a residential property into another residential property and you are unable to utilize money in construction or buying a new property before filing Income Tax Return.
Jitendra Dhasmana: Dear sir, I seek your advice on the issue of sale of property below Circle Rates and its implications.
Our ancestral home in UP constructed by our parents, has to be sold and sale proceeds to be distributed to all beneficiaries as per our mother's will. I am one of the beneficiaries. Say its value as assessed by a Govt Authorised Assessor is Rs. 'X'. Due to subdued Reality Market, location/access issues and other local factors, if it has to be sold at a price X/2, lower than the Circle Rate, then:
(a) What are the implications for the buyer?
(b) What are the implications for the seller?
(c) Can I save Capital Gains tax on my share of sale proceeds if I deposit it in a 'Capital Gains Account' in an authorised bank for the required duration?
(d) Alternatively, can I show the sale proceeds against a house that I purchased in Aug 2022 and save Capital Gains tax? The house purchased in Aug 22 is jointly registered in my and my wife's name. However, while I am one of the beneficiaries of the will, my wife is not a beneficiary.
(e) Between sub-para (c) and (d) above which option is better?
(f) Tax on Capital Gains is charged at a flat rate of 20% or it is charged at the appropriate tax slab?
Mihir Tanna: By transferring property below stamp duty value, there can be loss to the revenue. Accordingly, to safeguard the same, mainly three provisions exist in the income tax law for the said transactions.
First, seller of property while calculating capital gains has to consider stamp duty value as sale consideration.
Second, buyer will deduct TDS on stamp duty value at the time of making payment to the seller.
Lastly, the difference between sale consideration and stamp duty value will be Income of the Buyer in the year of transfer.
With reference to the "Capital Gain Account" -- point © -- option of investing in the same is available in case you plan to invest an amount of Long Term Capital Gain earned from a residential property into another residential property and you are unable to utilise money in construction or buying a new property before filing Income Tax Return.
For Point (d), To claim tax exemption for long term capital gain earned on transfer of house property, the seller should purchase a residential house either 1 year before the date of transfer or 2 years after the date of transfer.
In your case, if possession of ancestral home is given within 1 year of taking possession of new property (August 2022); exemption can be claimed.
For point (e), as explained above, Capital Gain Account is not a separate option to save tax. If the amount kept in account is not utilised for acquiring new property within 2 years, the amount kept in the Capital Gain Account will be taxable.
Long term capital gain on property is taxed at 20% plus applicable surcharge and cess.
Read more of Mihir Tanna's responses here.
Note: The questions and answers in this advisory are published to help the individual asking the question as well the large number of readers who read the same.
While we value our readers' requests for privacy and avoid using their actual names along with the question whenever a request is made, we regret that no question will be answered personally on e-mail.