Deductions From Long Term Capital Gains
Apart from the differences in mode of computation and tax liability; the LTCG is eligible for certain deductions. These deductions are available in the following circumstances:
- The LTCG is arising due to sale of a residential unit and investment is made in a new residential unit;
- The LTCG is arising due to sale of an agricultural land and investment is made in a new agricultural land;
- LTCG is arising on compulsory acquisition of lands and buildings of an industrial undertaking and investment is made for purchase of land or building to shift or re-establish the industrial undertaking;
- LTCG is arising from transfer of machinery or plant or building or land of an industrial undertaking situated in an urban area and an investment is made on machinery or plant or building or land for the purpose of shifting the industrial undertaking to any area other than urban area;
- LTCG is arising on sale of asset other than a residential unit and investment is made in a residential unit;
- Investment in financial assets;
- Investment in equity shares.
- Transfer of a residential house and investment in residential houseIf an individual or HUF having LTCG from transfer of a residential house makes investment to purchase or construct a residential house, the amount invested in the new residential house is allowed as a deduction from the LTCG. The new residential house can be constructed within 3 years from the date of transfer or can be purchased one year before or two years after the date of transfer.To claim this deduction, the assessee, after taking into consideration the amount that he has already invested for construction or purchase of the new residential house upto the due date of filing of return of income in his case, should deposit the remaining amount which he intends to use for purchasing or constructing the new residential house in a Capital Gains Deposit Account on or before the due date for filing of the return and enclose proof of investment in construction or purchase and proof of making deposit into the capital gains deposit account along with the return of income. Based on this he would be allowed the deduction from the LTCG for that assessment year.
The amount which is deposited in the Capital Gains Deposit Account has to be utilised by him for the purpose of purchase/ construction of the new residential house within two/ three years from the date of transfer, respectively. In case he fails to utilise this amount either wholly or partly for the above purpose within this period the amount remaining unutilised would be taxed as Capital Gains in the year in which the above mentioned period of three years is over.
The cost of the new residential unit purchased/ constructed would be reduced by the deduction allowed from LTCG for a period of 3 years from its date of purchase/ construction.
To illustrate, let us continue with the example in Chapter II. In the case of LTCG the assessee has an option to purchase house either one year prior or two years after 12.3.2011 or construct a house within 3 years from 12.3.2011.
Considering 31st July 2011 as the due date for filing of return in his case, and that he has invested in construction of a new house Rs. 3,15,177 up to that date, to claim deduction for entire LTCG, he should deposit Rs. 15,00,000/- (Rs. 18,15,777 – Rs. 3,15,177) in a Capital Gains Deposit Account on or before 31st July, 2011. If, out of this amount, he utilises only Rs. 12,00,000/- for constructing the house by 12.3.2014, Rs. 3,00,000/- (15 lakhs – 12 lakhs) would be taxed as Capital Gains for the assessment year 2015-16.
The cost of acquisition of the new house would be treated as nil till 3 years from the date of its completion.
Deductions From Long Term Capital Gains
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