What will be the Long Term Capital Gains (LTCG) tax if the proceeds from the sale of the asset and any inherited gold are used to buy another asset?
– Name withheld on request
We understand that you have earned Long Term Capital Gains (LTCG) from the sale of residential house property and inherited gold and intend to invest the sale proceeds in another residential house property to claim deduction against LTCG keep.
Section 54 of the Income Tax Act of 1961 provides exemption against LTCG arising from the sale of a residential house (original property). This exemption is available when the amount of LTCG arising from such sale is either invested for purchase of a second residential house (new house) within 1 year before or 2 years from the date of transfer of the original property or it is converted into a new one. Investments are made to build a house. Within 3 years of transfer of the original asset. The exemption will be available to the extent of LTCG investment.
A. Section 54F of the Act provides exemption against LTCG arising from the sale of any capital asset other than a residential house (having gold in your case). This exemption is available only if the net proceeds from the sale of a capital asset (i.e. gold) are invested for purchase of a residential house (new house) within 1 year before or 2 years after the sale of gold or the net income. Investment is made to build residential house property within 3 years from the date of sale of gold. The person claiming the above exemption should not own more than one house (other than a new house) on the date of sale of the original property. Where the entire net sales proceeds is not invested and only a part is invested, exemption under section 54F shall be available only on a proportionate basis.
Income tax provisions impose no restriction that LTCG from sale of property and sale proceeds from any other capital asset (being gold in the instant case) cannot be invested in the same residential house for the purpose of claiming deduction under the Act . It is also supported by judicial precedents. Thus, you can invest the proceeds from the sale of property and gold to buy a new residential property.
LTCG from the sale of house and gold will be exempt from tax, subject to fulfillment of all other conditions as prescribed. Any GST/indirect effect on such transfer should be examined separately.
Parizad Sirwalla is Partner and Head, Global Mobility Services, Tax, KPMG in India.