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Capital gains- query- urgent

Rekha (MANAGER - FINANCE & ACCOUNTS) (1445 Points)

08 October 2011

Hi frnds,,,

Pl answer this capital gains question..

An assessee (woman ) age 62 years, got a land in 1986 for 33000/-.

Now she has sold it (july 2011) for 65.5 lakhs and she has recd the money in her bank account.,

Now she wants to settle 10 lakhs for her gold loan and distribute the money to her three sons equally.. The money is still in her bank account ..

Whether capital gains will come for the three sons?? i feel it s a gift under will..

Whether that lady has to pay capital gains tax. ???? she has to apply for PAN. and if capital gains for her, what can be done to avoid tax in the next assessment year ?

whether 54 EC is ok to invest the capital gains amount if so what is the procedure for investing in 54 EC?? or any other INVESTMENT..

PL REPLY

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5 Replies

* Krishna * (CA Student) (6149 Points)
Replied 08 October 2011

Firstly, I presume that the land is not situated in rural area. I hope the land is situated in urban area. In such case, as per my view, this transaction attracts capital gains tax. However, she can escape the tax by investing in NHAI/REC bonds within 6months from the date of transfer. As she has sold it in July 2011, she can invest upto a maximum of Rs. 50 lakhs only to escape from CG Tax. If she would have sold the land during the period December-March, then she would have got a chance to invest upto Rs. 1 crore in bonds u/s 54 EC, because 6-month period is overlapping in two financial years. She has to apply for PAN and should pay the tax. As per section 47, transfer of capital asset under a gift or a will is not considered as Transfer and doesn't attract tax. But here capital asset is transferred to outside person, so it is not a transfer under a gift/will.

Further, in my opinion, before she pay the gold loan/distribution of money to her three sons, I feel we should first treat it as capital gains transaction and should pay tax. Lets wait for seniors comment.

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Mayank kharbanda (Risk Advisory Services) (409 Points)
Replied 08 October 2011

krishna...just an advice...don't be offended, but when you are giving an opinion then you also have to look at the facts. The cap gain is coming ard 63 lacs and you are advising her to invest 1 crore in bonds when the person has already mentioned that 10 lacs is to paid for repayment of gold loan and rest is to be distributed.

and the lady has already sold the land, you can't tell her to sell the land in dec-mar period.

too much info is sometimes bad. dis is for your learning. No offences. :)

@ Rekha. The capital gain tax will arise in hands of the lady, as this is application of income (distributing money to sons) and not diversion of income by overiding title. Hence it will be taxable in her hands.

Secondly she cannot claim any deduction for repayment of loan or distribution of income, as there is nothing mentioned under law for this.

Hope this helps

Mayank

P.S. also remem the advance tax liab. otherwise she will be liable for int u/s 234B & C

Rekha (MANAGER - FINANCE & ACCOUNTS) (1445 Points)
Replied 09 October 2011

Thanks krishna and mayank..

For investing in 54 EC, uPTO 50 LAKHS WHAT IS THE PROCEDURE.. WHERE WE HAVE TO GET THE BONDS.?

Rekha (MANAGER - FINANCE & ACCOUNTS) (1445 Points)
Replied 09 October 2011

And suppose she is investing in 54 EC, how many years she should hold the bond in NHAI /RECL to avoid CG Tax..

I mean what is the lock in period.. ?

* Krishna * (CA Student) (6149 Points)
Replied 09 October 2011

@ Rekha

Download the application form for investment in NHAI Bonds from below link and submit in the designed bank branch.

https://www.nhai.org/bonds1.html

For investing in the bonds, you don't need to have any demat account. Interest rate is 6% pa. Lock-in period for NHAI bonds is 3 years. Interest earned from these bonds are liable to tax, however no TDS is charged on them. NHAI Bonds issue will close on March 31, 2012. Even RECL issue is currently available for subscriptttion upto March 31, 2012, the details of which can be had from below link including application form:

https://rec.rcmcdelhi.com/

Hope all your doubts were cleared.