Anil Rego, CEO, Right Horizons (external link), answers your personal income tax queries.
A AGARWAL: Subject: Clarification on re-investment of LTCG amount from Equity MF redeemed during FY 2021-22 [AY2022-23] to save Tax.
I am a retired professional and have been filing the returns under ‘old tax regime’ to claim the benefits of deductions u/s 80C, 80D, 80TTB, Standard Deduction, etc.
I had purchased the units of equity oriented close-ended mutual fund on April 11, 2018 with a lock-in period of 1300 days i.e., > 3years, which I have automatically redeemed after the lock-in period; and the redemption proceeds [deposit amount plus the Long-Term Capital Gain] have been received on Nov 1, 2021. The total LTCG gain is of more than Rs 100,000.
I understand that out of total LTCG gain an amount of Rs 100,000 will be fully exempted from the tax, and only the balance amount will be subjected to tax @10% plus cess without indexation. Kindly confirm.
Since this has been my first time investing in such a scheme, I am not well versed.
I hope you will look into the above queries and will arrange to provide the answers at the earliest, in order to make the investment in the Bond well within the time-limit up to 30th March 2022, and to avoid last day rush. Further, since the amount has been received in 1st week of Nov 2021, can it be invested till 30th April 2022 i.e., within 6 months from the date of receipt to get the tax relief against FY 2021-22 or shall it be invested before 31st March 2022?
Anil Rego: Yes, your understanding is correct
Further, it has been learnt that one can also invest the LTCG gain amount under Section 54EC or 54 F to save on long-term capital gains tax of 10% plus cess by transferring the total amount to acquire the bonds issued by NHAI and RECL.
It is not clear what is the meaning of the word ‘total amount’ is. Is it the Net LTCG amount after discounting Rs 1,00,000 or the Gross LTCG amount i.e., without reducing the amount of Rs one lakh?
The Fund house has already deducted the STT at source while making the payment of redemption proceeds, during current FY [2021-22].
Anil Rego: This reinvestment to 54EC bonds to save tax is applicable only for capital gains from sale from house property.
My queries are:
1) To my understanding the Section 54 EC is applicable to the LTCG gain derived from the sale of land or building or both, and from the sale of listed shares — as per applicable holding periods. I would like to know whether the LTCG from redemption of units of Equity oriented mutual funds is also eligible u/s 54 EC or not?
Anil Rego: It is applicable to sale of property alone.
If not u/s 54EC – are there any other relevant sections like 54F, etc., under which such relief is available, during the current FY 2021-22 (AY 2022-23)?
Anil Rego: You can set off capital losses, if any.
2] What does it mean by ‘transferring the total amount to acquire bonds’ – does it mean
a) Full redemption amount less the STT and the invested amount, OR
b) The balance amount gained from the redemption amount after subtracting the invested amount, STT, and Rs 1,00,000.
Anil Rego: Not applicable as mentioned,
3] Presently the REC Capital Gains Tax Exemption Bonds-Series-XV at 5% coupon rate is available for investment till 31.3.2022. Since the payment has been received on 8th Nov 2021, can I make the investment in this bond, as it will be within the 6 months of receiving the redemption proceeds, to qualify for tax rebate during current FY [2021-22].
Anil Rego: Not applicable as mentioned
4] Since the interest on this REC bond is payable only once every-year (in June), I feel that during the subsequent years, starting from FY 2022-23, I would require to pay the regular tax (as per applicable slab) on Interest income of these bonds [received in June every year] till the maturity of the bonds (60 months lock-in).
Anil Rego: Interest on REC bonds are taxable.
5] Further, I understand that the amount deposited in these bonds will be tax-free in my hands after 5 years of lock-in period of bond? Is it correct? Kindly confirm.
Anil Rego: Yes, if you use it to save tax on an eligible asset.
You can find more of Mr Rego’s answers here.
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