Tax deduction on gains under DTC

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SummaryThere are certain tax benefits available under Income-Tax Act, 1961 in respect of capital gains arising from transfer of assets, if such gains are invested in the specified assets.

There are certain tax benefits available under Income-Tax Act, 1961 in respect of capital gains arising from transfer of assets, if such gains are invested in the specified assets. One of the popular tax benefits is in respect of investments made in residential property. It is pertinent to note that the scope of such benefits has been narrowed down under the Direct Tax Code 2010 and, therefore, requires attention.

In context of tax benefit to be claimed for investments in house property, it is provided that an individual or a Hindu Undivided Family (HUF) shall be allowed a deduction, in respect of roll-over of any original asset from the capital gain arising from the transfer of such asset; if such gain is invested in a house (new asset).

It is specified that the deduction is to be computed as per the prescribed formula, which is A x (B+C+D)/E.

‘A’ refers to the amount of capital gains arising from the transfer of the original asset. ‘B’ refers to the amount invested for purchase or construction of the new asset within a period of one year before the date of transfer of the original asset.

‘C’ refers to the amount invested for purchase or construction of the new asset by the end of the financial year in which the transfer of the original asset is effected or six months from the date of transfer, whichever is later. ‘D’ refers to the amount deposited in a capital gains deposit scheme with any bank by the end of the financial year in which the transfer of the original asset is effected or six months from the date of transfer, whichever is later. ‘E’ refers to the net consideration received from the transfer of original asset.

The amount deposited in the account under the capital gains deposit scheme shall be utilised for the purposes of purchase or construction of the new asset within a period of three years from the end of the financial year in which the transfer of the original asset is effected.

Besides, there are few other conditions that one needs to take into consideration. These include the new asset shall not be transferred within one year from the end of the financial year in which such new asset is acquired or constructed.

Further, the tax payer should not own more than one residential house other than

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