Tax Query: Can I claim capital gains exemption on investments in bonds?

I had sold a piece of land under a sale deed registered on 25 September 2019. The property was purchased on 16 January 1992. I wish to claim a capital gains exemption on the gains from the sale. I have not yet invested the sale proceeds in any asset or security. Can I claim a capital gains exemption for the FY 2019-20 by investing in residential house or long term bonds?

The gains arising from the sale of land held for more than two years are long-term capital gains. You can claim a capital gains exemption by investing in another residential house or long term specified bonds. You are required to invest the net sale consideration (net of the expenses incurred on transfer) in a new residential house.

The time allowed to purchase a new house is two years after the sale, or you can also construct a new house within three years after the sale. In case your purchase or construction is pending as on the filing of income tax return, you need to deposit the net sale consideration in a capital gains account scheme.

The exemption is dependent on the deposit of unutilised net sale consideration in the capital gains account scheme and the mandatory filing of the income tax return by the due date.

Also Read: Tax Query: Can I claim tax deduction on stamp duty for purchasing a flat?

You are also entitled to invest the long term capital gains in long term specified bonds. You can claim a capital gains exemption under section 54EC by investing in bonds of National Highways Authority of India or Rural Electrictrification Corporation Limited. The tenure of the bonds is five years. However, you should invest within six months from the date of sale, and the maximum exemption available is Rs 50 lakh.

In the case of FY 2019-20,  a period of six months from the date of sale on 25 September 2019 ended on 25 March 2020. Due to COVID-19, the government allows additional time to invest in a case where six months expired between 20 March and 29 June 2020. In your case, the period expires on 25 March 2020. Hence, you can invest in specified bonds by 30 June 2020. In case you wish to invest in a residential property, you have time to invest or deposit in capital gains account scheme until the due date for filing your income tax return by 30 September 2020. 

I have investments in units of gold ETFs I bought on 13 August 2019. I am planning to sell the units of the ETF. What is the tax implication of the sale of gold ETF if I sell in FY 2020-21?

An investment in gold ETF (Exchange Traded Funds) is a capital asset for tax purposes. The redemption of the units of ETF is a sale liable for capital gains tax. The taxation of the gains depends on the holding period of a taxpayer.

Gold ETF held for a period up to three years are categorised as short-term capital assets, and the gains are taxable as short-term capital gains. The difference between the sale price and purchase price and expenses incurred on transfer is the short-term gain. Such short-term gains get taxed as per the income slab of the taxpayer. In case the ETFs are sold after three years, the capital gains are long-term capital gains taxed at 20% (plus education cess and surcharge). In your case, the sale within three years gets taxed as short-term capital gains.

For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in