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How is tax calculated on sale of a property?

We sold a residential property in June 2019. However, a new property could not be purchased against it by the due date of September 2021. The entire capital gains amount was deposited in SBI Cap Gains Account Scheme (CGAS) in July 2020. I have been told that the capital gains amount will be considered as taxable income in the financial year 2022-23. SBI is now asking for an authority letter from the tax assessing officer before allowing the assessee to withdraw the amount deposited under CGAS.

Will the LTCG amount brought forward from FY2019-20 as taxable income in FY 2022-23 be treated as LTCG in FY2022-23? Also, what is the procedure for an assessee to obtain the authority letter from the IT assessing officer?

—Name withheld on request


As per the provisions of section 54 of the Income-tax Act, 1961, the amount deposited under the capital gain account scheme should be utilized wholly or partly towards purchase or construction of the new residential property within the specified period of 2 years (in case of purchase of property) or 3 years (in case of construction of property) from the date of transfer or sale of the property.

In case it is not utilized within the said time frame, the unutilized amount shall be taxable as capital gain income in the year in which this period specified from the date of transfer or sale of the property, expires.

We understand that you had sold residential property (held for more than 24 months before sale) in June 2019 and had deposited the long-term capital gain (‘LTCG’) in specified capital gain account scheme with State Bank of India within the prescribed timelines. Since you have not invested the amount for purchase or construction of any property within the prescribed period, the same shall be considered as taxable LTCG in the FY2022-23 (i.e. the FY in which period of 3 years from June 2019 is expired).

Further, as per Rule 13 of the Capital Account Scheme, 1988, in order to close the Capital Gain account the depositor needs to make an application to the deposit office in the specified form along with the approval from the jurisdictional assessing officer of the depositor. Kindly note that there are no prescribed instructions or guidelines for obtaining the approval from the tax authorities. 

You may accordingly submit an application before your jurisdictional assessing officer. You should also provide the details of the residential property sold during the FY 2019-20, computation of LTCG earned from sale of the property, date of deposit of the amount in Capital Gain Account Scheme, date of expiry of the specified period for investment in the new property along with corresponding backup documents like purchase and sale deed of the original residential property, passbook of the capital gain account etc.

The assessing officer may seek any additional information or  clarification (as he may deem fit) and accordingly process the application.

Parizad Sirwalla is partner and head, global mobility services, tax, at KPMG India.

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