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Updated: June 12, 2012 12:33 IST

Forum: Without Indexation benefit

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In connection with the article on Indexation and Capital Gains (PropertyPlus, June 2, 2012) a lot of queries have been received by us. One common query was “what if the 10 per cent Without Indexation benefit is allowed to be used in case of property sale.” We would like to clarify that the 10 per cent Without Indexation benefit is not offered for the proceeds received upon sale of property; only 20 per cent With Indexation benefit is applicable. The error seems to be in the interpretation and we regret the ambiguity in this case.

Given below is the Cost of Inflation Index from 1981-82 till 2011-12, a data that is released by the Income Tax department every year based on the inflation numbers. It gives a clear picture on the indexed numbers pertaining to various years. Readers interested in understanding the CII data will find it easy to calculate on their own, and can follow this table which could prove very useful.

Further, there have been a few queries on whether the unutilised funds after investing in a property can be invested in capital gain bonds. We would like to inform readers that the unutilised funds can be invested in such bonds and the money is locked for a period of three years from the date of investment.

On queries regarding the ‘designated bank' to deposit the sale proceeds we would like to clarify that a few nationalised banks such as State Bank of India do have such a provision wherein the received proceeds can be ‘temporarily' parked/invested until the decision on utilisation of the funds is made. To elaborate on this, if the seller, after receiving the sale proceeds, is undecided whether to purchase a property or construct a house or invest in capital gain bonds or pay taxes, he/she is allowed to park the funds in a capital gains account which is specially created for such temporary parking. Information on this can be obtained from most of the banks.

Another query pertains to a clarification with respect to sale proceeds not utilised fully (only partly invested) for the purpose of investing in a house. “Can the balance funds be invested in capital gain bonds?” Yes, the balance funds are allowed to be invested in capital gain bonds.

There seemed to be a misconception regarding the utility of funds received after the sale of property. The IT benefit is applicable only for repurchasing a flat/readymade house and/or constructing a house, the benefit is not extended if a vacant site/plot is purchased. A construction has to be done on the purchased site/plot within three years.

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