TaxTMI 
TaxTMI 
Charging of Tax Rate in FY 2025-26, on Withdrawn of Capital Exemption claimed under section 54 in FY 2022-23
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....harging of Tax Rate in FY 2025-26, on Withdrawn of Capital Exemption claimed under section 54 in FY 2022-23<br> Query (Issue) Started By: - PRIYAM KHAMBHATA Dated:- 29-6-2026 Last Reply Date:- 29-6-2026 Income Tax<br>Got 1 Reply<br>Income Tax<br>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 ....
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....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,....
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....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. Reply By Ryan Vaz: The Reply: Sho....
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....rt Practical Answer The deemed Long Term Capital Gain of Rs. 1,00,00,000 arising from the non-utilisation of CGAS funds under Section 54(3) will be taxable at a flat rate of 20% under Section 112(1)(a) of the Income-tax Act, 1961, for AY 2026-27. Additionally, applicable surcharge and Health and Education Cess of 4% will be levied on this tax. The 12.5% rate observed in the return filing utilit....
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....y is incorrect. Detailed Steps / Computation • Nature of Income: The unutilised amount from CGAS, as per Section 54(3), is treated as Long Term Capital Gain (LTCG) of the previous year in which the three-year period expires. • Applicable Tax Rate: Since this LTCG arises from the sale of a residential house property (and is deemed to be so upon withdrawal of exemption),....
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.... it is taxable under Section 112(1)(a) at a rate of 20%. The option to pay tax at 10% without indexation (under the proviso to Section 112(1)) is generally less beneficial for residential property where indexation benefit is significant, and it is an option, not the default. • Computation for AY 2026-27 (FY 2025-26): • Deemed LTCG (u/s 54(3)): Rs. 1,00,00,000 â€....
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....¢ Income Tax @ 20% (u/s 112(1)(a)): Rs. 1,00,00,000 * 20% = Rs. 20,00,000 • Surcharge: The surcharge rate depends on the total income of the assessee. • If total income > Rs. 50 lakh but up to Rs. 1 crore: 10% of income tax. • If total income > Rs. 1 crore but up to Rs. 2 crore: 15% of income tax. • If total income > Rs. 2 crore but up to Rs. 5 ....
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....crore: 25% of income tax. • If total income > Rs. 5 crore: 37% of income tax. Assuming the client's total income (including this deemed LTCG) is exactly Rs. 1 crore or between Rs. 50 lakh and Rs. 1 crore, the surcharge would be 10%. Surcharge @ 10%: Rs. 20,00,000 * 10% = Rs. 2,00,000 (If total income exceeds Rs. 1 crore, the surcharge would be 15% or hig....
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....her, as applicable.) • • Total Tax + Surcharge: Rs. 20,00,000 + Rs. 2,00,000 = Rs. 22,00,000 • Health and Education Cess @ 4%: Rs. 22,00,000 * 4% = Rs. 88,000 • Total Tax Liability: Rs. 22,00,000 + Rs. 88,000 = Rs. 22,88,000 The advance tax paid at 20% (which would be Rs. 20,00,000 before surcharge and cess) is consistent with the correct tax ....
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....rate. The 12.5% computation in the return filing utility is incorrect and should be overridden or corrected by ensuring the proper income head and section are selected.<br> Discussion Forum - Knowledge Sharing ....