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Capital gains: What should taxpayer do after acquiring a new asset?

Author: AN Shanbhag Sandeep Shanbhag/Wednesday, September 4, 2019/Categories: Exclusive

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Capital gains: What should taxpayer do after acquiring a new asset?

In compulsory acquisitions, the authorities take their own sweet time to pay compensation causing untold hardships. Consequently, the assessee won't be able to take desired action for saving the resultant tax within the stipulated period. Section 54H was formulated to provide extension of the time limits prescribed under Sections 54, 54B, 54D, and 54F to the date of the receipt of the compensation.

Under Section 45(5), the compensation initially awarded or any enhanced compensation awarded subsequently is charged to capital gains in the year in which it is received. The cost of acquisition for enhanced compensation should be taken as nil. Such compensation received shall be deemed to be income chargeable under the head ‘capital gains’ in the year during which the final order of such authority is made.


Whenever a taxpayer acquires a new asset before the stipulated dates as required under Sections 54, 54B, 54EC, 54F, 54G, 54GA and 54GB it's necessary to reopen original assessments for rectification. This has been eliminated through a special bank account called CGAS. The amount deposited in such an account before the last date of furnishing returns of income or actual date, if earlier, along with the amount already utilised, is deemed to be the amount utilised for the purpose. This means that the assessee can utilise this amount for any purpose whatsoever during intervening period — ACIT v Smt Uma Budhia [2004] 141Taxman39 (Kol).

The effective date for claiming exemption will be the date on which the bank receives the application, subject to realisation of the cheque or draft. However, the interest will be payable from the date on which cash is paid or the cheque or draft is realised. Interest rates are the same as those applicable to the normal savings and term bank deposits. For premature transfers from TDs to SBs, the normal penalties are applicable.

Where the amount sought to be withdrawn exceeds Rs 25,000, the bank shall make payment by a crossed demand draft drawn in favour of the person to whom the depositor intends to pay. The amount withdrawn shall be utilised within 60 days for the purpose. The unutilised portion, if any, shall be redeposited into CGAS.

If the amount is not utilised wholly or partly for the stipulated purpose, the amount of capital gains related with the unutilised portion of the deposit in CGAS shall be charged as long-term capital gains of the year in which the period expires.

Failure to invest unutilised amount of capital gain in CGAS where such failure was unintentional and for reasons beyond assessee’s control, would not disentitle assessee to claim of exemption — Jagan Nath Singh Lodha v. ITO [2004] 85TTJ173 (Jodh). However, carried forward loss can be set off against these gains, even if the loss occurred during the lock-in period of the CGAS.

Circular 743 (dated 6.5.96) states that when the account holder expires, the unutilised amount in CGAS account is not taxable in the hands of the legal heirs or nominees as the unutilised portion of the deposit does not partake the character of income in their hands but is only a part of the estate devolving upon them. There is no requirement for claiming exemption under Section 54 that the assessee should file his return of income before due date prescribed under Section 139(1). (The authors, AN Shanbhag and Sandeep Shanbhag, are tax consultants and can be reached at


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