Long-term gains on a house and on gold, with NHAI bonds and a house bought after the return date (as set, 1961 Act, AY 2022-23)

Readings

1. Index numbers. The question prints none. The notified cost inflation index is used: 100 for 2001-02, 109 for 2003-04 and 317 for 2021-22 (CBDT Notification No. 44/2017 of 5 June 2017 (S.O. 1790(E)), for 2001-02 and 2003-04; CBDT Notification No. 73/2021 of 15 June 2021 (S.O. 2336(E)), for 2021-22).
2. The new house. It is printed as bought on 15th August, 2022, which is after the previous year and after the due date of the return, 31st July, 2022. The date is taken as printed. The question does not say when the return was actually furnished, or that the unused amount was deposited in the Capital Gains Accounts Scheme before it was furnished (and in any case by the due date). The return is read as furnished by the due date, before the purchase, and no deposit as made. Sections 54(2) and 54F(4) test the use of the money against the date the return is furnished; the due date is the outer limit for the deposit. The result if the house counts (the return furnished after the purchase, a deposit made, or the date read as 15th August, 2021) is at the end.
3. X. A resident individual with no other income; the market value on 1st April, 2001 is given for the gold only.

Capital gain on the residential house

• Section 54EC. A long-term gain on land or a building is exempt to the extent it is invested, within six months of the transfer, in bonds of the National Highways Authority of India or the Rural Electrification Corporation redeemable after five years (section 54EC(1) and Explanation (ba)(ii)). The bonds bought on 15th March, 2022 are within six months and redeemable on 30th July, 2028, more than five years later. The investment counts only up to ₹50,00,000 (provisos to section 54EC(1)), which is more than the gain, so the whole ₹46,17,615 is exempt.
• Section 54 is not needed for the house, and in any case the new house was neither bought before the return is read as furnished nor covered by a deposit in the Capital Gains Accounts Scheme, which must be made before the return is furnished and not later than the section 139(1) due date, with proof of it sent with the return (section 54(2)).
• The bonds must be held for five years: if they are transferred, or converted into money otherwise than by transfer (a loan or advance on their security counts as conversion), within that time, the ₹46,17,615 not charged becomes long-term capital gain of that previous year (section 54EC(2), its proviso and Explanation).

Capital gain on the gold

• Cost. The gold was bought on 12th July, 2000, before 1st April, 2001, so its cost is the higher of the actual cost (₹8,00,000) and its fair market value on 1st April, 2001 (₹6,00,000), at X's option (section 55(2)(b)(i)): ₹8,00,000, indexed from 2001-02.
• No exemption. Section 54EC covers only land or buildings. Section 54F covers a long-term asset other than a house only if the net consideration is used to buy one residential house in India within one year before or two years after the transfer (or to build one within three years), and the amount not so used before the return is furnished is deposited in the Capital Gains Accounts Scheme before furnishing it, and in any case not later than the section 139(1) due date, with proof of the deposit sent with the return (section 54F(1) and section 54F(4)). The new house was bought on 15th August, 2022, after the return is read as furnished (by the due date of 31st July, 2022), with no deposit, so no exemption is allowed for the gold.

Computation of net income

Under section 115BAC. If X opts for the new regime for assessment year 2022-23 (he has no business or professional income, so the option goes with his section 139(1) return, in the prescribed manner: section 115BAC(5)(ii)), no deduction under Chapter VI-A other than section 80CCD(2) and section 80JJAA is allowed (section 115BAC(2)(i), inserted by the Finance Act, 2020, section 53), so the PPF deposit gives no section 80C deduction under that regime either. Sections 54EC and 54F are not among the exemptions section 115BAC(2) takes away, so the net income is ₹4,44,000 under either regime.

The gain is taxed at 20% under section 112. X has no other income, so as a resident individual he may reduce the gain by the shortfall of his other income below the exemption limit before the 20% is applied (proviso to section 112(1)(a)).

If the facts are read otherwise

• The house counts for section 54F (the return furnished after 15th August, 2022, as a belated return under section 139(4), so that the money was used before it; the unused amount deposited in the Capital Gains Accounts Scheme before the return was furnished and by 31st July, 2022; or the date read as 15th August, 2021, within a year before the transfer), and the proviso to section 54F(1) does not bar it: on the date he sold the gold X owned no more than one residential house other than the new one (the house was sold on 5th February), and he buys no other house within one year, or builds one within three years, after that date (the proviso bars the exemption only if the income from such a further house is chargeable under the head Income from house property): the house is used for the gold, since the house's own gain is already covered by the bonds. Exemption = 4,44,000 × 12,00,000 / 29,80,000 = ₹1,78,792 (section 54F(1)(b)); taxable gain on the gold ₹2,65,208 and net income ₹2,65,210 (rounded, section 288A).