Sec 54 EC

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Querist : Anonymous

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Querist : Anonymous (Querist)
28 May 2010 Dear Group Members,

One of my client has made capital gain on surrender of tenancy rights amounting to Rs.1.50 lacs. The transaction (transfer of long term capital assets) took place on 05.03.2010. In order to avail exemption from payment of tax on such capital gains, he is planning to invest the amt of capital gains in NHAI / REC Bonds as specified u/s 54EC of the I T Act.

To my knowledge, Section 54EC envisages for investment (of amount of long term capital gain) in NHAI / REC Bonds within a period of 6 months from the date of transfer of long term capital assets.

Here the date of transfer of long term capital assets is 05.03.2010.

Thus as per the above Section, my client has to invest the amount of capital gains in NHAI /REC bonds within 04.09.2010. If it is so, that's fine.

But, I am getting stuck at the point that the due date of filing return of income for the assesement year 2010-11 for my client is 31.07.2010.. Now, if he invests the amount of capital gains after filing return of income for the asst year 2010-11 in which he has made the capital gains, whether he can claim exemption.

The reason for my doubt arises only because of the fact that under Section 54, 54F, etc. it is stipulated that the amt of capital gains if not invested in the new residential house before the due date of filing of return of income, will have to keep the amt in any deposit account of a public sector bank in accordance with Capital gains Account Scheme.

I would request esteemed members of the group to kindly throw light on the above issue at their earliest possibility.

28 May 2010 Don't file the return, unless the investment is made. You can file belated return, which does not create any serious problem. If you file the return, then you need to file a revised return. However, all returns cannot be revised. Only discovery of omission or misstatement in the return filed, allows the revision. In your case, when you did not made the investment, and filed the return, the same cannot be either omission or misstatement. Therefore, wait till the investment is properly made and accepted by NHAI/RECL and then file the return.

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Querist : Anonymous

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Querist : Anonymous (Querist)
28 May 2010 By filing belated return he will be losing carry forward loss of the current year.

Any other relpy???

23 July 2025 To clarify the situation, you're seeking to know if any clubbing provisions would apply in the context of your client gifting an old house to his son in order to claim an exemption under Section 54F.

Key Points:
Section 54F Exemption: This section provides an exemption from long-term capital gains tax if the taxpayer reinvests the capital gains from the sale of a house into purchasing a new residential property. However, this exemption applies only if the taxpayer owns no more than one house at the time of the sale (except the new house that is being purchased). If the taxpayer owns more than one residential property, they are not eligible to claim the exemption under Section 54F.

Gifting the House: If your client gifts one of the existing houses to his son before the transaction of purchasing the new house, it could potentially help him meet the condition of "owning only one house" at the time of the new property purchase.

Clubbing Provisions: Under the Income Tax Act, clubbing provisions generally apply if the gifted asset generates income (like rent, interest, etc.), which is then considered the income of the person who made the gift (in this case, the father). However, since gifting property doesn't immediately generate income unless it is rented out, clubbing provisions would not directly apply to the gift of a house. However, the situation could change if the property is transferred to the son and generates income from rental or sale, in which case, any income generated from that property might be clubbed with the father's income.

Proof of Gift: As for proving that the house was gifted to the elder son on a certain date, that would depend on how you can substantiate the gift. Written gift agreements and other documentation (like a registered gift deed) could serve as evidence. In the event of scrutiny, the Income Tax Officer (ITO) may ask for evidence of the transaction, so it's important to maintain proper documentation to avoid complications.

Alternative Options: You also mentioned Section 54EC bonds. These bonds, typically issued by the government or certain approved entities, can be used to save capital gains tax, provided the amount is invested in these bonds within 6 months of the sale of the property. This could be an alternative if there are concerns about the gifting arrangement and the potential for scrutiny.

In Summary:
Clubbing provisions would not automatically apply just because a house is gifted to the son, but if there is any income generated from that gifted house (e.g., rent or sale proceeds), there could be implications.

Gifting the house in the manner you described seems feasible, but it will depend on maintaining proper documentation and ensuring the ITO is convinced that the gift occurred as stated.

Investing in Section 54EC bonds could also be a viable alternative to manage capital gains.


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