Individuals, HUFs Can Claim Exemption Under Section 54

Tridiv Dutta, Guwahati

I made a long-term capital gain (LTCG) of Rs 15 lakh from the sale of a flat (flat A), in 2022-23. I also invested Rs 60 lakh from my savings in a new flat, (flat C) in 2021-22. I had another flat (flat B) in my name at that time, which I sold in 2021-22 with LTCG of RS 12 lakh and invested the same in Section 54 EC bond, and showed it in my income tax return (ITR) for 2021-22. However, the registration of flat C has been done in my wife’s name. She is a homemaker, but has her Permanent Account Number (PAN). Tax was deducted at source (TDS) and I filed my ITR for flat C. Can I claim exemption of LTCG of Rs 15 lakh from the sale of flat A, while filing my ITR for 2022–23?

You can claim benefit of Section 54, under the following conditions.

• You have to be an individual or a Hindu Undivided Family (HUF). The asset transferred should be a long-term capital asset, being a residential house property.
• You should buy a new house within one or two years, or construct one within three years of the sale of the old house.
• Exemption can be claimed only in respect of one residential house property purchased/constructed in India.
• From assessment year 2021-22, the Finance Act, 2020 has amended Section 54 to extend the benefit of exemption in respect of investment made in two residential houses.
• The exemption for investment shall be available if the amount of LTCG does not exceed Rs 2 crore.
• If the assesse exercises this option, he/she shall not be entitled to exercise this option again for the same or any other assessment year.

As you are the owner of flat A and your wife is the owner of flat C, it’s a grey area as to whether you can claim exemption under Section 54 of the Income-tax Act, 1961.

Consult a chartered accountant for further clarity in the matter.

Uma S. Chander, Certified Financial Planner CM , Handholding Financials.

Rahul Vaidya, Jaipur

I have joined a start-up. The company has given me employees’ stock option plans (Esops). What will be my tax liability on those shares? It is an unlisted company.

Tax implications on Esops arise at the time they are issued to the employee, and later when they are sold after the vesting period is over. This also depends on the status of the company.

After the vesting period is over, the employee can buy the shares at face value. In that case, the employer will deduct tax at source (TDS) on the difference between the fair market value and the exercise price of Esop, and this perquisite will be added to the employee’s cost to company (CTC). In the second instance, if it is listed on a stock exchange, then securities transaction tax (STT) will be charged, and the difference between the market value and exercised price is considered as capital gain.

If it is sold within one year, it will be treated as short-term capital gain, and will be taxed at 15 per cent. Long-term capital gains (LTCG) will be taxed at 10 per cent, but gains up to Rs 1 lakh are exempted.

If it is an unlisted company, then off-market sale happens. Here, long term is 24 months or more and is taxed at 20 per cent with indexation. STCG is taxed at the applicable tax rate of the employee.

If the Esops are of a foreign listed company, then it needs to be declared under schedule FA.

An employee holding Esops of a recognised start-up is exempt from tax in the year they are exercised and can go for deferment of perquisites tax based on a few conditions, whichever is earlier, i.e., date of transfer by employee, five-year completion from date of allotment, or date of termination of employment.

If Esops are sold at a loss, they can be set off only against capital gains and the loss can be carried forward for eight years. Long-term capital loss from the sale of unlisted shares can only be set off against LTCG, while short-term capital loss can be set off against both LTCG and STCG.

Hina Shah Certifed Financial Planner CM Financial coach, Luhem