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Sale of properties: how is LTCG calculated?

How are the long term capital gains (LTCG) calculated in these scenarios:

Scenario 1: I sold a property in February and LTCG was calculated at 1 crore.

Can I invest 50 lakh in specified bonds (54EC) or in a residential property in the current financial year and the remaining amount in either bonds or another residential property after April?

Scenario-2: I sold the first property in March and the second one in May and the LTCG was calculated at 1 crore ( 40 lakh + 60 lakh).

Can I invest 50 lakh in bonds (54EC) for the current financial year and the remaining in the next financial year? Do I need to calculate LTCG separately for each financial year and invest 50 lakh or less in the bonds for each financial year?

—Name withheld on request

Scenario 1: It is assumed that the property sold was a residential house property.

To claim exemption against LTCG under section 54EC of the Income Tax Act, 1961, you would need to invest the LTCG in the prescribed long-term specified bonds/ assets (LTCA) and comply with the underlying conditions.

The LTCG should be invested in the LTCA within a period of 6 months from the date of such transfer. The investment in LTCA during the financial year in which the original asset is transferred and in the subsequent year should not exceed 50 lakh.

Hence, in your case, against the LTCG of 1 crore earned in FY 22-23, the overall exemption under section 54EC of the Act, cannot exceed 50 lakh.

Investment of LTCG in another residential house in India shall be eligible for exemption under Section 54 of the Act. The LTCG would need to be invested to purchase another residential house within 1 year before or 2 years after the transfer of original asset or to construct a new house within 3 years of transfer of original asset.

Also, investment in specified bonds up to a limit of 50 lakh in FY 23-24 (however within 6 months from the date of transfer), shall be eligible for exemption.

Under Section 54 of the Act, in case the LTCG is less than 2 crore, investment made by way of purchase or construction, in two residential house properties, at your option, may be eligible for exemption subject to fulfilment of the other prescribed conditions. Such option can however be availed only once in your lifetime. Hence if already availed in any earlier FY, the exemption will be restricted to investment in only one residential house in India.

Scenario 2: It has been assumed that the properties sold by you are land or building or both.

Against the LTCG of 40 lakh earned in March 2023 on first property, while you can invest up to 50 lakh in 2022-23, the exemption will be restricted to the amount of LTCG i.e., 40 lakh.

Against the LTCG of 60 lakh earned in May 2023 on second property, you are entitled to a maximum exemption of 50 lakh only.

The LTCG would be required to be calculated separately for each FY.

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

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