QUESTION: The entire sale proceeds of a residential property for Rs.29 lakh were deposited in a designated branch of a nationalised bank under Capital Gains Account Scheme during September 2010.
Capital gains on this transaction came to Rs.21 lakh. During June 2011, a house was purchased by investing an amount of Rs.26.48 lakh (inclusive of stamp duty, registration charges, etc.) to avail exemption under Sec. 54 by closing the account under Capital Gains Account Scheme on which an amount of Rs.1.23 lakh had accrued as interest on the amount deposited under the scheme. The question is whether to treat the interest as income under the head capital gains or income from other sources?
ANSWER: Interest from the deposit under Capital Gains Account Scheme has nothing to do with the provisions relating to taxation of capital gains. It is taxable in the year in which it is due and credited in the assessee's account as income from other sources.
Incidentally, it is noticed that the reader has deposited Rs.29 lakh, while the capital gains is only Rs.21 lakh.
Benefit
It would have been sufficient, if he had deposited only Rs.21 lakh. It is because the benefit of Sec. 54 is available for investment of capital gains itself, when what is sold is residential property.
Inference would have been different, if the sale proceeds were other than residential property, say sale of land or shares, for purposes of relief under Sec. 54F, when the entire sale proceeds are required to be deposited or utilised for getting full relief.
In other words, since the reader had purchased a new property for Rs.25 lakh, he will be satisfying the requirement of exemption for capital gains to the extent of Rs.21 lakh and would not get a larger relief with reference to the larger amount deposited under the scheme.
