Vakula is an HR professional in Singapore. She sold a jointly owned inherited property in India in Feb 2024 and retained the funds in her NRO account. She was hopeful of buying another flat in Chennai and avail capital gain exemption u/s 54. She could not identify a suitable flat till March 2024. It’s tax time in India now and Vakula needs to file her Income Tax Returns for her income in India. Will the delay in identifying the property result in she paying capital gain tax? Or is there a way out?

Sec 54 – Capital gain exemption

An individual can claim exemption u/s 54 of the Income Tax Act, if he or she re-invests the capital gains on sale of a residential property in another residential property within specified timelines.

Timelines

The Income Tax Act provides the tax payer with 2 years for purchase and 3 years for construction of the new residential property for claiming exemption u/s 54. This provision sounds perfect if Vakula manages to identify the new property as soon as she sold the old one. But as we all know, it’s quite difficult to find the “perfect” property !

Fall in line

While dealing with something as critical and as important as money, one should not take any chances. While the Income Tax Act provides for capital gain exemptions for re-investment in a property all these are claimed on a “self-declaration” mode while filing one’s Income Tax Returns. Even in genuine circumstances, if the assessee is not able to prove that conditions are met, the exemption may be withdrawn by the Assessing Officer.

Hence it is better to stick to the provisions of the Act and do what is expected from an assessee. In this case, it would have been ideal if Vakula had parked her capital gains on sale of her property in a separate Capital Gains Account as soon as she received the sale proceeds. She can use the funds from the CGAS account for re-investment in another property.

NOTE: A capital gains account can be opened in any of the banks that are notified by the Reserve Bank of India to offer such a facility.

Better Late Than Never

Although Vakula had missed to open a Capital Gains Account immediately on receipt of sale proceeds, she has time till filing her return of income (31st July 2024) for doing the same.

Hence by parking her funds in the CGAS account, Vakula can save the capital gain tax while filing her ITR for FY 2023-24. Vakula should keep in mind that if she does not identify and reinvest the capital gains parked in the CGAS account within time lines specified u/s 54, the same will get taxed as long term capital gains in the year in which the time limit expires

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CA Chockalingam K

Partner at Chockalingam Unnamalai & Associates

Chockalingam is a Fellow member of the Institute of Chartered Accountants of India and holds a Dip. in IFRS (ACCA). He has a professional experience of 15 years in the Industry. Since his formative years as a CA in Industry, Chocksi (as he is fondly referred to by fellow collogues) has been keen on developing his skill sets in Financial Process Management and Tax Practice. His experience at Shell Plc for over 12 years gave him adequate exposure to the process management best practices across the Company.

With a 15 year experience in the Industry, Chocksi decided to commence his practice after the “Entrepreneurial Bug” bit him ! He is the Founder Partner of Chockalingam Unnamalai & Associates, Chartered Accountants.

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