CGAS deposits can be used for purchase or construction of specified capital assets only
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Can I withdraw partially from a Capital Gains Accounts Scheme (CGAS) and invest it in equities? Will I be liable to pay long-term capital gains (LTCG) tax for the withdrawn amount or for the entire amount in that period? Can capital gain proceeds be invested in equities for saving tax?
Deposits made in a CGAS account are required to be used only for the purchase or construction of the specified capital asset (for example, a residential house). Rules restrict withdrawals from such a CGAS account and you may have to provide proof of re-investment into the specified capital asset to your banker before or immediately after applying for withdrawal.
If you choose to close the account, you would need to seek specific approval from the jurisdictional assessing officer.
Where the amounts deposited in CGAS are withdrawn and either not reinvested in the specified capital asset or not reinvested within the specified time period, the amounts not utilized will be treated as income and will be taxed as LTCG in the specified tax year (determined on the basis of the section under which the claim for tax exemption was made).
My father had purchased a property in Ahmedabad on 1 January 1979 for Rs79,000. I sold the property in August 2015 for Rs3 lakh. I purchased a new property for Rs35 lakh in September 2015 in Gandhinagar. But we bought the property in three names—first my wife, second my father, third my son. For the new property, my son took a loan of Rs21 lakh. If we were to sell this, how will the tax be calculated for all of us?
It is understood that the property purchased in September 2015 is partly owned by your son, father and your wife (each of whom has funded a part of the purchase cost). We have presumed that you have invested in this property in your wife’s name (i.e., the funds your wife has invested are from your sources of income or savings). From an income tax perspective, you will be regarded as a co-owner (instead of your wife).
Gains arising from the sale of a house that has been held for more than 24 months would be taxable as LTCG, which is computed as the difference between the net sale proceeds and the indexed cost of acquisition or improvement. Indexation refers to adjusting the cost for inflation, by applying the Cost Inflation Index notified by the tax authorities in the year of purchase or improvement and the year of sale, respectively.
However, if this property being sold currently was utilized for claiming exemption under Section 54 of Income Tax Act, 1961 on sale of the property purchased by your father in 1979, then the said exemption claimed earlier would be reduced from the cost of acquisition of the current property being sold if the same is sold before holding the same for 3 years.
Each co-owner is required to offer the capital gain in proportion to the ownership to tax and the percentage of ownership would need to be substantiated with legal documents like a purchase deed.
Each co-owner is eligible to avail an exemption from the capital gain tax by reinvesting the gain in a new residential property situated in India or by investing in specified bonds under Sections 54, 54F and 54EC of the income-tax Act, depending on the conditions by each of the sections, respectively. Un-invested gains are taxable in the hands of each co-owner in the proportion of ownership, at 20% (plus applicable cess and surcharge).
There will also be tax arising from the reversal of the deduction claimed by your son under Section 80C towards principal repayment of the home loan he got for this property if it is sold before being held for at least 5 years from the end of the tax year 2015-16.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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