LTCG and Basic Exemption Limit

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This discussion clarifies whether capital gains from selling a house can be reduced by the basic income tax exemption limit before investing in capital gains bonds under Section 54EC. The consensus is that while the law doesn't explicitly state this adjustment, it appears to be permissible based on the proviso to section 112(1)(a), which has not been amended in recent finance bills. This could potentially reduce tax liability to zero by only investing the remaining taxable capital gain.

Krishnan

Krishnan (Querist)

10 March 2020 Can experts please clarify my below query with regard to LTCG, capital gain bond investment and basic exemption limit?
A person sells a house and have got 10 Lakh as capital gains. He doesn't have any other source of income except for FD interest of Rs.10000 in the current financial year (2019-20). As per Sec 54EC, if he invests the capital gains into capital gain bonds, he need not have to pay tax. In this case, after adjusting income from other sources (Rs.10000) from basic exemption limit of Rs.2,50,000, he still has balance of Rs.2,40,000. As such, can he only invest Rs.7,60,000 in capital gain bonds after adjusting against the balance Basic exemption limit to reduce his tax liability to 0? From what I understand, this was allowed but someone said this adjustment is no longer available from AY 2020-21 as part of FY-19 budget proposal. Please advise if this adjustment is still valid for current FY.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

10 March 2020 Such adjustment is allowable other experts also clarify this point.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

11 March 2020 Such an adjustment is not specified in law. But if you do so , in the cited case, there will not be income tax liability.
The adjustment referred in the query is as per proviso to section 112(1)(a) and it is not amended either in Finance BIll ,2019 or in Finance bill,2020.

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Krishnan

Krishnan (Querist)

11 March 2020 Thanks Chakrapani and Seetharaman for your clarification.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

11 March 2020 Welcome..............

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