Skip to main content

Real Estate - Tax Saving investment can be done within calendar month

Download Tax Saving Mutual Fund Application Forms

Invest In Tax Saving Mutual Funds Online

Buy Gold Mutual Funds

Leave a missed Call on

94 8300 8300

 

 

Tax payers need not invest proceeds from sale of property strictly within 180 days from date of sale to get exemption under Section 54EC

 As there was no dispute that the taxpayer had invested the money in capital gains bonds, the Bench overlooked the fact that the investment was done with a delay of a few days

 

Taxpayers looking to save taxes on long- term capital gains, but not willing to invest in a house property, are eligible to invest the capital gains in specified bonds of public sector undertakings like National Highway Authority of India ( NHAI) and Rural Electrification Corporation (REC) and save capital gains taxes under section 54EC of the Income Tax ( I- T) Act. These bonds offer a lock- in period of three years beyond which they can be liquidated. The interest rate offered by the bonds is approximately 6 per cent and the interest earned on the bonds is taxable.

These bonds are a good option available for taxpayers to save capital gains taxes without committing money over the long term. The section, however, restricts the amount of exemption to 50 lakh invested in these bonds per financial year.

 

Section 54EC of the I- T Act provides that where the long term capital gain is invested by a taxpayer, at any time within a period of six months after the date of transfer of the capital asset, in the specified bonds, then the resulting capital gains will be exempt to the extent of amount invested in the bonds. Recently, in a case that came up before the Special Bench of Income Tax Appellate Tribunal, Ahmedabad, a taxpayer had sold his flat for a total consideration of 64 lakh. In his return of income, the taxpayer had computed the capital gains as nil. The basis for the nil capital gains was that the gain was stated to be approximately 56 lakh; however, he had made the investment in NHAI bonds to the tune of 45 lakh and claimed a deduction under section 54EC of the Act. The balance gains of 12 lakh were invested in a capital gain account scheme.

 

During the course of assessment proceedings, the tax officer observed that the investment in NHAI bonds of 45 lakh for the purpose of claim of deduction u/ s 54EC was purchased on December 17, 2008 as per the entry in the bank pass book. The tax officer further observed that the sale document was registered on June 10, 2008 and hence the taxpayer was required to purchase the bonds within six months of the date of registration.

 

The taxpayer informed the tax officer that the last date of expiry of six months from the date of transfer of the house property was December 10, 2008; however, he had tendered the cheque along with the application for the bonds on December 8, 2008 to the bank, which was within the period of six months from the date of sale. The taxpayer put up another stand that the time limit for investment in bonds is available till the end of month of December 2008. But tax officer denied the exemption to the taxpayer in the assessment order.

 

The taxpayer then preferred an appeal with first appellate authority, where he submitted that as the application was submitted to the bank along with the cheque before the last day of the expiry of six months from the date of sale, he was entitled to the deduction u/ s 54EC. However, as the date and time stamp on the application copy was not clear, the appellate authority could not ascertain its validity. Hence, the authority too rejected the taxpayer's claim. When the matter came up before the Special Bench, the taxpayer argued that the term ' month' as used in the section 54EC has not been defined in the Act. Consequently, the same should be interpreted as per the definition given under the General Clauses Act where the term ' month' is reckoned as per the British calendar.

 

The tax officers argued that in respect of the computation of period for the purpose of prescribing alimitation under the Act, the wordings are unambiguous.

 

As per the language, a particular date is to be taken into account for the purpose of calculation of days/ months. In view of the same, there was no necessity to take the help of "General Clauses Act". Therefore, the tax officers claimed that for the purpose of section 54EC, a month is a period from specified date in a month to the date numerically corresponding to the date in the following months less one.

 

The Special Bench observed that the crux of the issue at hand is whether for the purposes of section 54EC, the period of investment should be calculated as six months after the date of transfer or to be reckoned as 180 days from the date of transfer. The Bench observed that the phrase " within a period of six months after the date of transfer" has not been used in the Act for any other provisions and is used only for the purpose of investment in certain specified assets in respect of computation of capital gains. It observed that the Act has provided an incentive to a taxpayer, who has earned long- term capital gains, to get relief if the gains are invested in any specified assets, provided the investment has been made at any time within a period of six months after the date of such transfer.

 

The Bench relied on other judgements on the interpretation of the term month and it was observed that in majority of the cases, the expression six months means six calendar months and not 180 days. In the absence of the definition of the word ' month' in the Act, the one given in the General Clauses Act shall prevail. As there was no dispute that the taxpayer had invested the money in capital gains bonds, the claim that the investment was done with a delay of few days does not support the purpose of the incentive offered by the section. Accordingly, the Special Bench allowed the taxpayer's claim.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund

2.Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...

Term insurance

Term insurance may not be the most-marketed product by life cos, but it’s a must-have in today’s risk-prone lifestyle WHEN was the last time your insurance agent sold a term plan to you? It’s not a very popular policy among agents, as their commission in absolute terms is low because of the low-premium. Just as agents have their self interests in mind while selling, you need to make your own decision about your insurance needs, which are unique to your family. COST ADVANTAGE A term plan is pure protection. It is the cheapest type of life insurance policy. But what you see might not be what you get, most insurers have a range of health parameters for standard rates. If any of your health parameters — weight, blood pressure for instance fall outside this range, you will pay more. For some companies, the standard range is very narrow. EARLY BIRD GAINS A 30-year-old will pay 15% more premium than a 25-year-old. At 40, the premium is double of what is applicable for a 25-year old, points...

Stock Dividend Yields

During a bull run, it’s very easy to ignore stocks with high dividend yields. After all, what could be more enticing than a growth stock? But in times of crisis, these boring ones tend to be the most sought after. The reason being that not only do dividends provide a cushion when the market is in the doldrums but such stocks also tend to fall less. The lure of dividend yield stocks is not easy to ignore. These stocks offer capital appreciation as well as cash payments. But logically, any company that pays a substantial portion of its earnings in dividends is reinvesting less and, therefore, would grow at a slower pace. So the trade-off is between higher dividend yields for lower earnings growth. On the other hand, companies with high growth potential and volatile earnings tend to pay less by way of dividends, if at all. Such companies would rather reinvest their earnings to sustain their growth. The capital appreciation of growth stocks is obviously higher than in dividend yield ones. ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now