I sold my flat for Rs 36 lakh. Where can I park this money before buying REC Bonds to save tax?

Welcome to the Reader’s Query segment of FE Money. This week, Dr C T Sridhar from Hyderabad shared with us that he has received Rs 36 lakh on selling his flat recently and he is planning to subscribe to REC Bonds to save on capital gains tax.

Dr. Sridhar asked whether he could park this money temporarily in his Savings Bank account or transfer the money to the SBI Capital Gain account before deploying it to REC bonds. Further, Dr. Sridhar wanted to know whether he should declare this amount to the Income Tax Department before purchasing REC bonds.

Dr. Suresh Surana, Founder of RSM India, a tax consultancy firm, answers Dr Sridhar’s queries:

The Capital Gains Accounts Scheme, 1988 (hereinafter referred to as ‘the Scheme’) allows taxpayers to claim the benefit of tax exemption under the S. 54 series (by way of depositing the amount of capital gains/ sale consideration in the capital gains account for investment in residential property) while furnishing their tax return for the relevant financial year in case where the taxpayer has not been able to make the required investment subject to certain conditions.

However, it is pertinent to note that the said Scheme is not applicable in the case of Section 54EC (which provides tax exemption up to Rs 50 lakh on capital gains derived from immovable property provided such gains are invested in specified bonds including RECL bonds within 6 months from date of sale/ transfer of immovable property).

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As such, the taxpayer can temporarily park his/her proceeds in the SBI savings account as the investment in specified bonds needs to be made within 6 months from the date of transfer of house property and the taxpayer cannot transfer his/her proceeds to SBI Capital gain account.

Since practically such exemption cannot be claimed unless the capital gains arising from the transfer of the original asset are invested in specified bonds, it is assumed that such investment needs to be made before filing the return of income in case the due date for furnishing tax return falls before the expiry of 6 months.

Moreover, the income tax department does not require taxpayers to make any declaration before purchasing specified bonds. However, the taxpayer would be required to provide the details of such capital gains transaction in their income tax return along with the details of tax exemption claimed based on the amount invested in the RECL.

Have any home loan, property, income tax or other personal finance-related queries? Write to fe.money@financialexpress.com. We will get relevant queries answered by personal finance experts.

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