the due date of furnishing of return of income by the assessee. The pre-condition for availing this tax benefit is that the equity holding or voting power of the taxpayer in the enterprise after the investment should be more than 50%.
Further, certain instruments like capital gain bonds have been prescribed in which the profit arising from the sale of a property can be invested to avail tax exemption. These instruments have a lock-in period of three years and the maximum limit for investing in such instruments is R50 lakh.
These bonds are currently being issued by the National Highways Authority of India (NHAI) and Rural Electrification Corporation Limited (REC). If the entire amount of the long-term capital gains is invested in these bonds, the tax is fully exempted. Investments of any lesser amount will be granted proportional deduction. Now, if a property has not been identified and purchased before the tax return has been filed or before the due date of filing it, whichever comes earlier, the money has to be deposited in a special account known as the Capital Gain Account Scheme (CGAS).
Doing this conveys to the authorities that you intend to buy a property to save the capital gains tax. Any withdrawal from CGAS should only be for payments in relation to the purchase of the new property. Lastly, the new property bought has to be held for a minimum period of three years failing which the capital gains arising from the sale of the new property, together with the amount of capital gains exempted earlier, will be chargeable to tax in the year of sale of the new property.
The writer is managing partner, Nangia & Co.
With inputs from Ashutosh Jain