Capital Gains Reinvestment

[Guest]

Dear Forum Members

I need advice on a Capital Gains reinvestment.

I sold a Plot in Feb 2014, the capital gains of ₹ 45 Lakhs is parked in a Capital Gains account Scheme in an authorized bank. I need to reinvest by Feb 8, 2017 in an residential house (not an apartment as the 2 year time period has expired for buying an apartment)

It is now almost 2 years 10 months since I sold my plot. The query I have is

Can I buy a built old residential house within the next 2 months to claim the capital gains benefits or should I buy a Plot and construct a house within the next 2 months to claim the capital gains benefits

Advice from experts on this forum will be greatly appreciated

regards

P S Krishnan

[DR.MARIAPPAN GOVINDARAJAN]

In my view capital gains will not be there for the building of old residential house. You can claim capital gains if the new building is constructed within three years time limit. If it is not possible you may invest in the bank deposit as authorized by the Central Government for the purpose of capital gains.

[Ganeshan Kalyani]

In my view the querist has invested in the capital gain fund scheme which means the complaince is met.

[Guest]

Thank you for your comments. I have a few queries

1) Should I only buy a plot and construct or can I also buy an old residential house within 3 years, given that I am now in 34th month out of the 36 month exemption time limit to reinvest

2) What happens if I do not reinvest after / within 36 months, but the capital gains is reinvested in a Capital Gains account scheme in an public sector bank. Will I have to pay taxes along with penalty, what will be the penalty. Or Because I have kept / parked the money in an Capital Gains account scheme for 3 years and I am getting lesser interest at 4% than the 6% in NHAI / REC bonds, Can I take out the money and use it after paying taxes on interest

Your advice will be appreciated

Thanks & regards

P S Krishnan

[Guest]

Thank you for your comments. This has helped me decide the next course of action. I have decided not to buy a property and construct, instead i will pay tax on the capital gains

I had sold a property in Feb 2014, and I invested the capital gains in an capital gains account on 31 July 2014 with the objective of buying a housing plot and constructing a house. But on account of change in property registration policy of Tamil Nadu, I was not able to purchase / register a plot. My 3 year reinvestment period ends in Feb 2017 and I have now decided not to reinvest. The queries I have are

1. If I do not invest the capital gains that is parked in the capital gains account within 3 years, do I have to only pay 20% Long term capital gains tax on the gains, or is interest and penalty on the capital gains for 3 years also applicable (I am aware that I will have to pay capital gains on the interest accumulated in the capital gains account). This query is if there will be interest and penalty on the capital gains

2. Assuming that there is no interest / penalty on the capital gains. Will this capital gains be treated as income for the financial year. If yes which year should I declare the income. I sold the property in Feb 2014, and the 3 year period end in Feb 2017 (FY 2016-2017); and I invested the capital gains in an capital gains accounts scheme in July 2014 and the 3 year period end in July 2017 (in FY 2017-2018). Should this be declared as income in FY 2016-2017 (3 years from sale of old property) or in FY 2017-2018 (3 years from investment in the capital gains account scheme)

Your views will be very much appreciated

regards

P S Krishnan

AI Summary

Capital gains reinvestment deadline affects tax exemption; failure to reinvest triggers capital gains tax liability. Taxpayer sold land and placed long term capital gains in a Capital Gains Account Scheme seeking exemption by reinvestment. Purchase of an existing residential dwelling is constrained by the shorter purchase deadline, whereas claiming exemption for a newly constructed dwelling requires completion within the three year construction requirement. Parking funds in an authorised capital gains account meets interim compliance, but failure to reinvest by the applicable period will make the gains taxable; interest earned in the capital gains account is taxable and contributors noted uncertainty about additional penalties.