Invest Rs 18 lakh LTCG in 54EC bonds for exemption.
Gifts to individual then HUF are clubbed for taxation.
LTCG under Rs 1.25 lakh taxed at nil rate.
Invest Unindexed Capital Gains In Section 54EC Bonds After Deducting Property Cost To Avail Of LTCG Exemption
Profits made on sale of a house held for more than two years qualify for long-term capital gains. Income generated from money gifted to an individual, but deposited in an HUF account later, will be added to the individual’s income every year till the HUF is fully partitioned. LTCG on sale of equity mutual funds is treated as taxable while filing ITR, but gets taxed at nil rate up to the exemption limit of Rs 1.25 lakh
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During August 2018, I had purchased a flat at Rs 42 lakh, out of the sale proceeds of my share in my father’s house. I am now getting an offer to sell it for Rs 60 lakh. Thus, my profit will be Rs 18 lakh. I already have one more house. How much amount do I have to invest in capital gains bonds, i.e. my profit of Rs. 18 Lakh or the entire sale proceeds of Rs 60 lakh? Am I at liberty to spend the originally invested amount of Rs 42 lakh for buying land, car and/or keeping it in a fixed deposit account?
Since the flat was held for more than two year, the profits made by you are long-term capital gains (LTCG) for which you can claim exemption under section 54EC of the Income-tax Act, 1961 by investing in capital gain bonds.
For claiming the exemption under Section 54EC in bonds of specified financial institutions, you are required to invest the unindexed capital gains after deducting the cost of the property from the sale proceeds as the benefit of indexation is no longer available for computing the capital gains in order to arrive at the amount to be invested for claiming exemption from LTCG. Thus, you need to invest Rs 18 lakh in bonds. You are free to utilise the remaining amount in whatever way you want.
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I made my Hindu Undivided Family (HUF) deed and obtained the Permanent Account Number (PAN) after four years into my marriage when my daughter was born. I will be opening a bank account next. I want to transfer Rs 5 lakh to the HUF bank account which was received as a gift from my family members at the time of our wedding. Can I do that?
Yes, you can do that, but it will not serve you any purpose. Since the gifts were made to you and not to your HUF, thus the money belongs to you. If you do, the clubbing provisions will come into operation and any income generated with this money will be added to your income year after year till the HUF is fully partitioned. The clubbing provisions will still apply in respect of the part of the asset acquired from this money and allocated to your spouse.
The clubbing provisions apply to the original income and not the income received made out of income already clubbed.
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My LTCG on redemption of equity mutual funds is only Rs. 67,980, which is less than the exemption limit of Rs 1.25 lakh. However, the income tax return (ITR) form is taking the entire amount as taxable income. How do I claim exemption on such LTCG on equity mutual funds?
Section 112A provides the rates of tax at which LTCG on listed equity shares, units of equity- oriented units and market-linked Unit-linked insurance plans (Ulips) gets taxed. The amount of Rs 1.25 lakh which you contend as tax exempt is not exempt, but is taxable, though it gets taxed at nil rate. So, though it is effectively tax-exempt, it is still treated as taxable in your hands and treated as such while filing the ITR. It is automatically taken into account when computing tax liability. It is not an exemption, but income on which tax is calculated at nil rate.
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The author is a tax and investment expert and can be reached on jainbalwant@gmail.com
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
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