Invest in bonds to save tax on capital gains

SC Vasudeva

Q. a) I applied for a 200 sq yd plot in Sector 76-80 of SAS Nagar on 01.01.2001 by depositing 10% earnest money of Rs 67,000.

b)   Thereafter, I deposited 15% of cost of plot i.e. Rs 1,00,500 after draw of lots.

c)   I was allotted a 200 sq yd plot in Sector 78, SAS Nagar, Mohali, @ 3,350 per sq. yd. with a note that a sum of Rs 1,67,500 has been received and the balance amount of Rs 5,02,500 being 75% of tentative price can be deposited in half yearly instalment along with interest @12% per annum and the same was deposited as under:

1.  Deposited an extension fee of Rs 99,430 on 19.08.2019 and Rs 78,530 on 02.09.2019.

2.   Deposited Rs 1,21,600 in Corporation Bank on 15.10.2019 for issuance of stamp paper for the execution of conveyance deed.

3.   Deposited Rs 60,800 as Punjab Govt fee at the time of registration of conveyance deed with the Tehsildar. 

I am a housewife and now want to sell this plot for Rs 50,00,000. Since it is a long-term investment, please let me know the amount of tax payable by me. Please also suggest how I can save the income tax.

- Anju Sharma

A.   The indexed cost of the plot purchased by you works out at Rs 11,60,732. The amount of extension fee, stamp duty charges and registration expenses for registration of conveyance deed have been considered for the purpose of computing the above indexed cost. It has been presumed while computing the indexed cost that the allotment of the plot was made in the financial year 2016-17 and, therefore, you have held the plot for a period of more than 24 months,  the amount of long-term capital gain on the said basis works out at Rs 34,78,908.  Presuming that you don’t have any other income and you are not a senior citizen, after giving a relief of the initial slab of Rs 2,50,000, the amount of tax on such gain would works out at Rs 6,71,613. You can save the amount of tax by purchasing/constructing a residential house by utilising the entire sale consideration of Rs 50,00,000 for purchase of residential house within two years after the date of sale or construct a residential house within three years after the date of the sale of the plot. 

You also have an option to purchase tax-saving bonds for the amount of capital gain. These bonds can be purchased for a maximum amount of Rs 50,00,000.  These bonds can be purchased from National Highways Authority of India and Rural Electrification Corporation Ltd. These bonds can be purchased within six months of the date of sale of the plot and have a lock-in period of 5 years. Such bonds carry a nominal rate of interest.

Q. I am thankful to you for your valuable reply published in these columns on November 11. As already informed, I have filed the income-tax return of my wife for the FY 2018-19 (AY 2019-20).

In another query by a reader you have mentioned that if the taxable income after deduction comes to Rs 6 lakh, the taxable amount would be Rs 33,800. As announced by the government in the Budget, the tax should be on Rs 1 lakh and it comes to Rs 20,000 + 800 = 20,800. I understand that though the income is more than Rs 5 lakh, still rebate of Rs 12,500 (5% on 2.5 lakh) is admissible. Kindly advise.  Further, I wish to inform that I will buy a house for Rs 18 lakh in December 2019 and plan to sell the same after 3-4 months at the price of Rs 18-19 lakh. What will be my tax liability?

- Satinder Vir Singh

A. It is legally incorrect to hold the fixed deposits and NSCs in the name of a deceased person.  The bank also seems to have committed an error if an information with regard to the death had been communicated to the bank. The income-tax rebate of Rs 12,500 under Section 87A of the Income-tax Act, 1961 (The Act) is allowable to an individual assessee in case his total income does not exceed Rs 5 lakh.  The relevant section reads as under:-

“87A.  An assessee, being an individual resident in India, whose total income does not exceed Rs 5 lakh, shall be entitled to a deduction, from the amount of income-tax (as computed before allowing  the deductions under this Chapter) on his total income with which he is chargeable  for any assessment year, of an amount equal to 100% of such income-tax or an amount of Rs 12,500, whichever is less”.

Therefore, your impression that this rebate is allowable in cases where the income exceeds Rs 5 lakh is not correct. In case the house purchased by you in December 2019 is sold after a period of 3-4 months at an amount exceeding Rs 18 lakh, the gain if any, would be treated as short-term capital gain and would become part of your total income, thus taxable at the slab rate applicable to your total income.

Q.   Kindly refer to the query published in these columns on 25/11/19 on bank liquidation under DICGC Insurance & Deposits in post office and intimate whether schemes of fixed deposits such as PPF & Senior Citizens Savings Scheme etc of Post Office, also operative in nationalised banks, are also basically deposits with government department and as such not covered under DICGC insurance.

- SS Bedi

A.   Deposits with nationalised banks are not treated as deposits with the Government of India because the banks are treated as an entity different from Government of India in accordance with the provisions of the Act under which these banks had been nationalised. The nationalised banks, being separate undertakings, are making payment of dividend to the Government of India on the shares held in the name of the President of India. In case these banks were part of the government, there would have been no question of making payment of dividend to the Government of India. I may add that even the employees of such banks are not treated as government employees.