No tax on funds invested
THERE IS NO LIABILITY TO INCOME-TAX IF A PERSON HAS NOT EARNED ANY INCOME FROM THE TAX-PAID FUNDS DEPOSITED BY HIM IN THE CURRENT ACCOUNT.
QI understand that if there is a capital gain that I earn on transfer of land, I need to re-invest in a house property to enjoy a tax exemption. I also understand that the reinvestment if not made within a stipulated time, an investment needs to be made in the bank. Is this view correct? If I have to invest these funds in the bank, can I draw the money from the account for meeting the cost of construction of the house? RAVI TEJA Via email You can invest in a house within the stipulated time or in Capital Gains Account Scheme (CGAS) which is to be used for the purchase or construction of the house within the stipulated time and claim exemption under Section 54F provided you satisfy the other conditions stipulated in this section. For the exemption to be claimed under 54F, the following conditions need to be satisfied:
■ The assessee is an individual or HUF.
■ The gain arises from the transfer of long term capital asset not being a residential house.
■ The assessee does not within two years purchase or in three years construct any residential house other than the new house.
The quantum exempt will be on the following basis:
■ If the amount invested is more than or equal to the net consideration, then the entire capital gain.
■ If the amount invested is less than the net consideration, the amount invested X capital gain / net consideration. For claiming exemption under Section 54F, the amount not invested towards the purchase of the new asset within one year before the date of transfer or which is not utilised for the purchase or construction of the new asset before the due date of furnishing the return of income for the relevant assessment year, may be deposited before the due date for furnishing the return of income, in any bank or institution in a specified account known as “Capital Gains Account Scheme”.
If this is done, the amount invested will be deemed to have been utilised for purchase or construction of the new asset.
The amount so invested may be withdrawn for the purpose of purchase or construction of the new asset within the specified time. For an asset to qualify as a long term capital asset at the time of sale, it has to be held for at least 24 months (36 months earlier) from FY2017-18 onwards.
Further, the proof of deposit is not to be furnished with return of income but has to be produced before the assessing officer, when demanded.
QA person won `50 lakh from a television show and got a reward after deducting tax at source. The person had deposited the amount in his current account, which earns no interest. Will the same amount taxable in next year, if assessee not utilise the aforesaid amount. SHAKUNTALA DEVI
Via email There is no liability to income-tax if a person has not earned any income from the tax paid funds deposited by him in the current account. Moreover, there will not be any tax liability on utilisation of these funds. It is only the income generated on investment of these funds which will be liable to tax.