Income Tax Return: Want to save tax on sold property? You have to do it by the ITR due date

Not only the due date of filing of ITR for the Assessment Year 2022-23 will end on July 31, 2022, but also your chance to save tax on sale of house property.

Income Tax Return: Want to save tax on sold property? You have to do it by the ITR due date
You have to act fast and open a Capital Gain Account in a nationalised bank and deposit the amount before filing your ITR within the due date.

Not only the due date of filing of Income Tax Return (ITR) for the Assessment Year (AY) 2022-23 (Financial Year (FY) 2021-22) will end on July 31, 2022 – unless extended further – but also your chance to save tax on long-term capital gain (LTCG) from sale of house property will be over by this month end.

So, in case you have sold your property in FY 2021-22 and failed to reinvest the amount in purchasing another property or in buying Capital Gain Bonds within six months from the date of sale, you have to act fast and open a Capital Gain Account in a nationalised bank and deposit the amount before filing your ITR within the due date.

So, in case you have sold your property on the end of January 2022 or later, you have three ways to save the LTCG on sale of house – either to purchase a new house and complete the registration before filing your ITR within the due date or to invest the amount in Capital Gain Bond (up to Rs 50 lakh is allowed) before filing or in case you are not in position to invest the money in new property or the Bonds, open a Capital Gain Account and deposit the money before filing your return of income on or before the due date.

Purchasing New Property

You may save LTCG tax on sale of your residential property by buying up to two residential properties within one year before the sale or within two years after the sale of your old house property.

If you have sold your old property in FY 2021-22, you may save the tax by completing the registration process of the newly bought property / properties before filing your ITR by the due date of filing return, that is July 31, 2022, unless extended.

Investing in Capital Gain Bonds

If you are in no mood of purchasing a new property, you may invest the gain amount in Capital Gain Bonds within six months from the date of sale of the old house property.

“One can also invest the gain in certain specified bonds to claim tax exemption within 6 months of the date of sale of the asset. These capital gains bonds also called as 54EC bonds are the preferred choice of investing long-term capital gain tax arising out of sale of a capital asset,” said Vijay Singhania, Chairman, TradeSmart.

Singhania lists the features of investing in Capital Gain Bonds:

  • The maximum limit for investing in 54EC bonds is Rs 50 lakh.
  • The bonds that are eligible under this section are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) , NHAI (National Highways Authority of India) and IRFC (Indian Railways Finance Corporation Limited).
  • 54EC bonds are locked in for a period of 5 years (effective from April 2018) and are non-transferable.
  • It is important to invest the money within six months of sale, irrespective of the fact that the sale was done in the previous assessment year.

How can a person save tax by investing in Capital Gain Bond in another assessment year?

“If the person wants to invest the amount in capital gain bonds post the return filing due date, i.e. 31st July, then to claim the exemption under Section 54EC, he/she will have to invest the amount in the capital gain account scheme before the due date and claim the exemption. Later on (after 31st July 2022 but before September 2022), they can invest the amount in capital gain bonds,” said Archit Gupta, Founder & CEO, Clear.

“If any amount remains un-invested (in capital gain bonds) from the capital gain account, such amount will be taxable in the year of the breach,” he added.

So, even for investing in Capital Gain Bonds, you have to take steps before filing your return of income within the ITR due date.

Depositing in Capital Gain Account

In case you fail to invest the gain amount in purchasing a new house or two, or in Capital Gain Bonds in time, you may buy more time by opening a Capital Gain Account and depositing the money before filing your return within the ITR due date.

“Assuming you sold your house because you got a good rate for it but are unable to find a good property to invest the proceeds in. In such a case you have only one option to save yourself from capital gains tax that can be levied on the gains made from the sale and that is to open a Capital Gains Account Scheme (CGAS) at any public sector bank. In such a case you have 3 years to choose a new house or build one,” said Singhania.

Singhania lists the features of Capital Gain Account:

  • Under the CGAS scheme, there are 2 types of accounts to deposit your funds.
  • A Type-A account is a savings deposit account and a Type-B account are term deposit accounts which have cumulative and non-cumulative interest options.
  • One can transfer money between the two by paying the fixed charges, but withdrawal is allowed only from Type-A accounts, that too on the declaration that the money will be used to construct a house within 60 days. Any unutilised funds have to be re-deposited.

“The person can claim the exemption by parking the gains in the Capital Gains Account in a public sector bank or other eligible banks, before the due date of ITR filing, i.e. 31st July 2022. The exemption will be allowed to the extent of the amount of capital gain deposited in the Capital Gain Account. Later, such capital gains can be withdrawn from the Capital Gains Account and should be invested in tax-saving bonds before September 2022,” said Gupta.

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