Claim Exemption Under Section 54F For LTCG On Sale Of Asset Other Than Residential House

I am a practising doctor. I want to sell my small dispensary, which I had purchased in 2015, and buy a bigger place for my clinic?  Can I claim exemption from capital gains?

Any profit arising from the sale of your present dispensary will be treated as long-term capital gains (LTCG). For LTCG on sale of an asset other than a residential house, you can claim exemption under Section 54F of the Income-tax Act, 1961, only if you invest the sale consideration for buying a residential house. Since you are planning to buy a commercial property, you cannot claim any exemption from payment of LTCG.  

You can save LTCG up to Rs. 50 lakh by investing the capital gains in bonds of specified financial institutions under Section 54EC of the Income-tax Act, 1961 within six months from date of sale of the dispensary.  

However, if you undertake the buy and sale transactions in the same financial year, the same will get adjusted in your block of assets and you will not have to pay any tax on profits made on sale of old dispensary, as long as your block of assets at the end of the year does not become negative. However, if both the transactions take place during different years, you may have to pay tax on profits so made.

I am a non-resident Indian (NRI). I have opened a portfolio investment scheme (PIS) account and dematerialised account in my name, and a normal resident dematerialised account in my spouse’s name who is incidentally a resident under tax laws. I have transferred some amount to my wife's account from my NRI account and used this amount to purchase stocks through her resident dematerialised account. I got some short-term capital gains (STCG) of Rs. 30,000 in the last financial year in my account. I would like to file an income tax return (ITR) though the amount is small. How should I go about filing my ITR? I am also doing systematic investment plans (SIP) in stocks in her name. Will there be any legal issues for the fund that I am transferring every month to her account? Will it give rise to any conflict to my NRI status as well?  

Since you have STCG, you will have to file ITR 2. Presuming that the STCG arose from listed equity shares and since you are a non-resident, you are not entitled to set off any shortfall in the basic exemption limit of Rs. 2.50 lakh against STCG on listed shares, and so, you will have to pay tax at 15 per cent on the entire STCG unless the tax has already been deducted at source (TDS) which is more likely, as the broker is required to deduct TDS on capital gains made by individual NRI investors.  

There is nothing illegal as regards you transferring money from your account to your wife’s account. The amount transferred can either be treated as a gift that you made, or, as a loan if the money is intended to be repaid in future. However, income which accrues to your wife is required to be clubbed in your hand as long as the marriage subsists. The clubbing provisions will continue to apply even if the asset is converted into any other form in future. The clubbing provisions will apply with respect to the gift made and not on investments made of the income already clubbed.

The author is a tax and investment expert

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)