Can I get LTCG deduction now on house sold during lockdown?
Premium- Section 54 of the Income-tax (I-T) Act, 1961, provides for deduction against long-term capital gains (LTCG) arising from the sale of a residential house (the original asset)
I sold a residential house in June 2019 and incurred capital gains. As per rules, an assessee investing the capital gain amount in another property within 24 months of the sale can save on capital gain tax.
However, I have been unable to buy a new house due to lockdowns in the country. Has the Central Board of Direct Taxes (CBDT) given any extensions on the time limit of 24 months due to covid-related lockdowns?
— Name withheld on request
Section 54 of the Income-tax (I-T) Act, 1961, provides for deduction against long-term capital gains (LTCG) arising from the sale of a residential house (the original asset). The deduction is available where the amount of LTCG arising from such sale is either invested to purchase another residential house (new house) within 1 year before or 2 years after the transfer of the original asset or the same is invested to construct a new house within 3 years of the transfer of original asset.
The exemption will be available to the extent of LTCG invested.
It may be noted that in case the amount is not so utilized before the prescribed date of furnishing the return of income, the same needs to be deposited with the bank under the Capital Gain Account Scheme (CAGS) for claiming the above deduction in the tax return and subsequently, the amount so deposited may be utilized within the specified period.
Based on the available facts, we understand that you were not able to invest the LTCG in the new house till June 2021. It is assumed that you had however deposited the amount of LTCG in the CAGS on or before 30 September 2020 (being the extended due date for deposit of the unutilized funds for the purpose of claiming deduction under Section 54) and have accordingly considered the deduction in respect of LTCG amounts so deposited while filing your tax return for FY2019-20.
The CBDT had extended the last date of compliance to 30 September 2021. Hence in the instant case, the 2-year period for purchase of the new house ends on 30 September 2021.
In case you have not been able to purchase the new house within the above-extended timeline and you would not be able to complete the construction of the new house within the period of 3 years from the transfer of the original asset, the amount of deduction claimed by you for FY2019-20 shall be considered as taxable income for FY2022-23.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.