I have sold my residential flat this month. The sale deed has been executed and registered, and we have received part of the payment. Under the terms of the agreement, the buyer will pay me the balance of the money in June 2025. My long-term capital gain on selling this property is ₹70 lakh. Can I invest the long-term capital gains of Rs. 70 lakhs in capital gain bonds to claim tax exemption? Since when did six months count? Is it from the date of agreement or receipt of final payment?
Generally, the payments for property transactions are made at the time of or before the date of execution of the sale deed. However, the terms of payments may vary depending on what is agreed to between the buyer and seller. It seems you executed the sale deed without receiving full sale consideration, which is perfectly legal. The legal ownership of the property is transferred to the buyer upon execution of the sale deed. The balance payment the buyer will make in June 2025 is now a debt he owes to you.
You can file a suit to recover the debt owed if he fails to make the balance payment, but you do not have the option to cancel the sale transaction, which obtained its finality on the execution of the sale deed, unless it is clearly provided in the agreement that the sale is contingent on payment of the balance amount.
Property Sale Completed: Key Tax Implications for ₹70 Lakh Gains Explained
Since the ownership of the property stands transferred on the execution of the sale deed on which the transfer happened. Therefore, six months of investment in capital gains bonds starts from the date of execution of the agreement. Please note that after the removal of the indexation provision for practically all the purposes from the current year, you are required to invest plain long-term capital gains to avail of the exemption for tax on long-term capital gains on sale of residential house whether in a residential house under Section 54 or capital gains bonds under section 54EC.
Though you have earned long-term capital gains of 70 lakh rupees, section 54EC has a cap of ₹50 lakh of investment, which can be made in respect of one financial year and one financial year, so you may have to pay tax on the balance long-term capital gains of 20 lakhs either at 12.50% on plain long-term capital gains or at 20% on indexed capital gains as you have acquired the property before 23 rd August 2024 presuming that you are a resident of India.
Alternatively, you can invest ₹20 lakh in another residential property within the prescribed time period to claim the capital gains exemption under section 54.
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Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant his X handle.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
