I am planning to sell an apartment I bought about 16 years ago. I want to build a detached house with the proceeds from the sale. However, the process of acquiring a plot and starting construction is expected to begin only after a period of 10 to 12 months from the date of sale of the flat. Please let me know if I should keep the sale proceeds in some form of investment to avoid capital gains taxes. If so, I would like to know which of these investments are available and whether I can withdraw them at will after parking the money in these investments.
Section 54 exempts an individual and an HUF from tax on long-term capital gains arising from the sale of a residential property, provided that the taxpayer has invested the amount of long-term capital gains for the purchase of a residential property within two years of its sale. the sale date of the existing home. The exemption can still be claimed if the appraiser has already purchased a residential property within one year before the date of sale of the home. In case of construction, the appraiser is given an extended period of 3 years from the date of sale, within which the construction of the house must be completed.
How to avoid capital gains taxes when selling an apartment and building a new house
If only a portion of the long-term capital gains required to be invested were used for these purposes, the exemption would be available for the amount of the long-term capital gains invested in residential properties, and the balance would be subject to tax. For tax payment, the resident and HUF can pay tax of 20% on indexed profits or 12.50% on non-indexed profits. Please note that the indexation benefit is not available to calculate the amount to invest.
In case the entire or part of the amount to be invested is not utilized for the acquisition of the house before the due date of filing the ITR, the unutilized amount must be deposited in a special account in a bank called the Capital Bank . Profit Accounts Scheme (CGAS).
The amount deposited in such account before the last date of furnishing of income (or actual date, if earlier), together with the amount already utilized as required, shall be deemed to be the amount appropriated for the purpose used, and exemption under Section 54 can be claimed while filing the ITR.
Withdrawals from this account can only be made to pay for the purchase or construction of a residential home. Suppose that the amount is not used in whole or in part for the intended purpose within the specified period. In that case, the amount of the capital gain relating to the unused part of the deposit will be charged in CGAS as the capital gain of the year in which the prescribed period expires.
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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant on his X handle.
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