Tax provisions for sale of assets
The Income Tax Act grants deduction in respect of long term capital gain arising on sale of any asset other than residential house property
Are you planning to sell your assets and are concerned about the income taxes you may be liable to pay? Here is what you may want to know and understand for shielding your gains from the tax scissors.
The Income Tax Act provides for tax deduction for the reinvestments made consequent to sale of Long Term Capital Assets (LTCA). An asset is said to be a LTCA if the period of holding such an asset before transfer exceeds 36 months from the date of acquisition. The period of holding for certain category of listed securities, equity oriented mutual fund units and bonds is only 12 months instead of 36 months.
Section 54F of the Income Tax Act grants deduction in respect of Long Term Capital Gain (LTCG) arising on sale of any LTCA, other than residential house property, upon reinvestment of sale proceeds in a residential house property and fulfilment of certain conditions.
These provisions were first introduced in the year 1982 with a view to encourage investments into residential house properties. Ironically, in its original avatar in 1982, deduction was not available if a person already owned any residential property as on the date of transfer of the LTCA. It is only in the year 2000, the critical amendment was made, so as to accommodate the deduction even when a residential house property is already owned at the time of transfer; but this is limited to owning not more than one residential house property other than the new residential house property that one is intending to invest.
The provisions of this section are available only to benefit an individual or a HUF.
Ways of re-investment
Purchase of residential house property: Purchase needs to be made within one year prior to
Construction of residential house property: Construction needs to be made within three years from the date of transfer of LTCA.
Tax Provisions have been ambiguous and were debated on two main issues; whether one can claim deduction for investments made in more than one house and whether such house can be situated outside India? These two issues were clarified with a landmark amendment made in the Finance Act 2014 where the tax wordings were substituted with ‘one residential house in India’. This means that the purchase/ construction can be made only in one residential house property and that too in the house located in India. This amendment stood effective from April 1, 2015.
Deposit into CGAS: If the tax payer is unable to utilise