Charging of Tax Rate in FY 2025-26, on Withdrawn of Capital Exemption claimed under section 54 in FY 2022-23

[PRIYAM KHAMBHATA]

Respected Sir

One of my client has claimed Exemption u/s. 54 of Rs.1,00,00,000 by way of Investment in Capital Gain Account Scheme for construction of new residential house, against against the Long Term Capital Gain on sold of residential house in AY 2023-24, Due to some unavoidable circumstances such new construction is not completed within 3 years from the date of transfer of original assets. Therefore, he has to withdraw such claimed exemption u/s. 54 of Rs.1,00,00,000 in FY 2025-26, and paid Advance Tax @ 20% on such Deemed LTCG of Rs.1,00,00,000/-

Now, while filing his Return of Income for AY 2026-27, I am facing big problem that, Tax computed at 12.5% in stead of 20%, on such Deemed LTCG income (Rs.1,00,00,000) offered in return of income of AY 2026-27. Please guide me, what is the correct tax rate would be charged as per the Income tax provision for filing Income tax Return of FY 2025-26.

AI Summary

Deemed long-term capital gain on unutilised housing exemption funds is taxable at the applicable long-term rate.
Unutilised amount invested in the Capital Gain Account Scheme for a claim under section 54 is treated as deemed long-term capital gain in the previous year in which the prescribed three-year period expires, where the new residential house is not completed within that period. The deemed gain is taxable under section 112(1)(a) at the applicable long-term capital gains rate of 20%, with surcharge and health and education cess as applicable.