Your Queries (Income Tax): Tax exemption on gain on plot sale if reinvested in new house within 2 years

By Chirag Nangia

I have sold a small plot belonging to my father. I want to reinvest the money in a small flat. How much time do I have to do so or should I put this money in a government bond?

We are assuming that the plot/ land transferred by you was a long-term capital asset (i.e. held for a period more than two years immediately preceding the date of transfer). Any gain on sale of a plot of land can be claimed as exempt under Section 54F, if net consideration is invested in purchase of one residential house property. The new house property has to be purchased within one year before or two years after the date of transfer of capital asset or constructed within a period of three years after the date of transfer.

If by the time of filing of ITR for the relevant assessment year, the net consideration/ part of it cannot be appropriated towards purchase of a new house, then such amount may be deposited in the Capital Gain Account Scheme (CGAS).

Then, the cumulative amount of the investment and deposit in CGAS is allowed as a deduction from resultant capital gains. The amount kept in CGAS has to be utilised within the time limits specified above, else unutilised amount would be treated as capital gains, proportionately, in the year in which the period expires. All the details pertaining to investment in new assets/ CGAS, utilization from CGAS have to be furnished in the Income Tax Return form.

Alternatively, the long-term capital gains on sale of plot, may be invested in bonds of RECL/NHAI, within a period of six months from the date of transfer of asset to claim exemption under Section 54EC. However, the total investment in the financial year and the subsequent financial year can be up to Rs 50 lakh.

I am a student and have earned profits of Rs 50,000 from trading in stocks in the past six months. Do I have to file ITR and if so what form?
—Manipal Mithun
Compulsorily ITR filing is only when gross total income of the previous year exceeds the basic exemption limit of Rs 2.5 lakh for an individual below 60 years. If your total income is only Rs 50,000, you are not obligated to file an ITR. However, you may file a return on a voluntary basis. Since you have been trading in shares, the resultant income must be disclosed under head ‘profits and gains from business and profession’ in ITR Form 3, for AY 2021-22.

The writer is director, Nangia Andersen India. Send your queries to [email protected]