Can I save proceeds from a land sale in FDs?

I offered my residential land for ₹50 lakh in January 2023. I had purchased it for ₹2.15 lakh in April 2004. To keep away from capital beneficial properties tax, I intend to speculate all the quantity in shopping for a brand new home inside subsequent 6-7 months. Can I park the sale proceeds as FD in my SBI account until then or is it necessary to open capital beneficial properties account to maintain this cash? If sure, what’s the most time by which it must be opened.

— Krishna Kumar Trivedi

We perceive that you just intend to speculate the Long-Term Capital Gain (‘LTCG’) from sale of residential land (‘Original asset) in new residential home property to say deduction towards the LTCG underneath part 54F of the Income-tax Act, 1961.

Section 54F of the act gives for exemption towards the capital acquire arising from the sale of a long-term capital asset (not being a residential home). This exemption is out there (topic to fulfilment of specified situations) the place the quantity of web consideration arising from such sale is both invested to buy one other residential home inside a 12 months earlier than or two years of the switch of unique asset, or the identical is invested to assemble a brand new home inside three years of the switch of unique asset. The exemption will probably be out there in proportion to the web consideration invested.

In case, the assessee is unable to buy or assemble the brand new home until the date of submitting the unique return of earnings, the web consideration not utilized (in entire or half) to buy or assemble new home shall be required to be deposited in Capital Gains Deposit Account Scheme with a specified financial institution by the due date of submitting of the unique tax return. The new home will be bought or constructed by withdrawing the quantity from the account inside the specified time restrict of two years or 3 years, as relevant.

In the moment case, we word that the unique asset, i.e., residential land was offered in January 2023 (i.e., FY 2022-23). Thus, to be able to declare exemption, the web consideration must be invested in buy / development of a brand new residential property inside a interval of two years / 3 years from the date of switch of unique asset (being January 2023).

Further, in case the web consideration is just not re-invested until the date of furnishing the return underneath part 139 of the Act, then such quantity will be deposited earlier than the due date of submitting tax return underneath part 139(1) of the Act, in a specified Capital Gain Account Scheme (CGAS) checking account (and never as a Fixed Deposit) with approved banks and utilized within the method prescribed, to avail of the deduction.

Assuming that you’re not required to get your books of accounts audited underneath any legislation, due date of submitting tax return for topic monetary 12 months i.e., FY 2022-23 underneath part 139(1) will probably be 31 July 2023. Accordingly, any quantity of web consideration which stays uninvested within the buy / development of the brand new home, shall be required to be deposited in CGAS of a specified financial institution earlier than 31 July 2023, to be able to be eligible to say exemption underneath part 54F of the Act.

Parizad Sirwalla is associate and head, world mobility providers, tax, KPMG in India.

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