QUESTION: Please refer to your answer in the Tax Forum in The Hindu dated September 26, 2011, under the title “How interest from capital gains scheme is treated?” The answer requires further clarifications on some issues.
(i) Since interest on deposit in Capital Gains Account Scheme is taxable and tax deductible, I presume that it is not required to be used for acquiring or construction of another property as for the main deposit. Kindly confirm.
(ii) I would like to know whether land located in a residential area would be treated as residential property for availing more liberal concession under Sec. 54 than under Sec. 54F.
(iii) You have stated that the reader had deposited the entire sale consideration of Rs.26.48 lakh, while what was required for getting total exemption under Sec. 54 in the reader's case was investment only of capital gains of Rs.21 lakh, since what he had sold was a residential property.
What happens to the excess deposit? Will it be liable for capital gains tax on refund?
ANSWER: The inference of the reader that interest amount can be drawn without any further obligation imposed for availing exemption from capital gains is correct. This answers the first query.
As for the meaning of “residential property”, the language wherever it is used in the Chapter dealing with capital gains as for example under Sec. 54 or 54F is a “residential house” which cannot include mere land even if it is in a residential area and is meant for construction of residential houses or apartments.
An apartment is recognised as a residential house. This answers the second query.
As for the excess investment in Capital Gains Account Scheme, it can be got refunded even before the expiry of the period of three years.
In fact, refund is possible, if decided not to avail the benefit of deduction under Sec. 54 or 54F, as the case may be, even earlier to three years with the authorisation from the assessing officer under Rule 9 of the Scheme. This would apply for all excess deposits. Even if it is retained for the full period, the extra deposit amount does not involve any extra liability except that the money was locked up unnecessarily under the Scheme. This answers the third query.
