Recent Changes in MCA portal V2 with New Web- Based V3 Portal for LLPs

 The Ministry of corporate affairs (MCA) is primarily concerned with the administration of the Companies Act 2013, the Companies Act 1956, the LLP Act, 2008 & other allied laws, rules & regulations formulated there under, primarily for regulating the functioning of the corporate sector under law.

For the smooth functioning and administration, MCA comes up with relevant changes and developments from time to time. So far, many changes have been taken place in MCA portal for the functioning of various registrations and filings. The MCA was providing facility of setting up business in India, private limited company registration, one person company registration, along with certain procedures to register a new company in India through V2 version of MCA. However, various amendments were made by the Ministry from time to time to bring out important changes in the company formation procedure in India. Recently, the Ministry has introduced new portal for LLP registration in India and come up with the new facilities of web-based services of LLP. In our recent article, we are going to discuss about the recent changes in the version 2 of the MCA Portal and the functioning of new web-based portal. It is advisable to consult a professional if any person has doubts regarding how to set up business in India.

 

Earlier, Version 2 of the MCA portal was used to file various forms relating to company formation in India and LLPs. However, LLP Services discontinued on the V2 Portal and relocated to the V3 Portal. Only the LLP e-filing services are upgraded and migrated to the MCA V3 portal, and all the other forms/ services relating to pvt ltd company registration, other company filings and miscellaneous services will continue to exist/be filed at the MCA V2 portal.

 

The MCA has launched a new way of e-filing for LLP on the MCA21 Portal for setting up LLP in India. All LLP filings from now on will be web-based.

 

Key features:

 

1. Simplified & Secure Login & Registrations
2.  Form Enhancements
3.  LLP forms
4.  New Payment Platforms
5. Interactive Dashboards
6. Revamped Back Office Portal for Officers.

The V3 Portal enables the following for LLPs:

 

1. Login & user Registration;
2. DSC Association; and
3. LLP Form Filing.

To access both the versions of the V2 and V3 on the MCA Portal, one has to login or sign in/up in the MCA portal via www.mca.gov.in, where the user will be provided the access to LLP (V3) and Companies/ other filings (V2) separately. Both V2 and V3 are now working flawlessly.

 

Main Difference between V2 & V3:

 

The V3 version is the updated version of the V2 Portal. In the V2 Portal, the forms relating to company formation procedure and other filings are required to be filled and then uploaded in the Portal after affixing the DSC, while in V3, the forms are to be filled online. This updated version of V3 enables the users' convenience, including the ability to save a half-filled form and file it later.

 

Further, there is a personalized "My Application" feature in the V3 Portal, which allows the User not only to view all the forms filed by them till date but also the status of the forms such as pending for Resubmission, DSC upload, Pay fees, under Processing, etc., as against the V2 Portal where My Workspace is being provided, which consist of a list of notices and circulars from MCA issued from time to time.

 

In addition to this, the login is through the email id in the V3 version; On the other hand, in V2, it was possible with the user id. OTP will be provided to the mobile and email address of the User to ensure authenticity as soon as a business user logs in to the MCA system.

 

Lastly, there is no difference in Associating DSC between V2 and V3.

 

Login & LLP Forms Filling Process on V3 MCA Portal

 

The process to log in to LLP on MCA V3 Portal and fill LLP web forms has been discussed in detail below:

 

Method to Login

 

• The User will first proceed to the "Sign in/Sign Up" link on the top right corner of the MCA portal. On clicking the login icon on the left-hand side of the MCA Portal, two separate icons will be shown, one for LLP Login and the other for company login. As soon as you log in on the LLP login, you will be directed toward the LLP page. Here, users can use their existing login credentials.

• The User must choose the LLP login option rather than the company login.

• After successful login, users would be able to fill out LLP incorporation forms by utilizing the various options. 

Method to Fill the LLP Forms 

• At the top right corner of the MCA portal, through the existing login id of MCA, the User will proceed "Sign in/Sign Up" link. There is no need to make a new login for the LLP portal. A user can use their existing login ids.

• After this, Sign in to the Portal through the existing login id of MCA.

• The User is required to use the "profile update" option after login into the Portal successfully so that other forms of Limited Liability Partnership like LLP form-3 for registration of LLP agreement, Form 4 for Change in LLP partners/designated partners will display in their login.

• The option of "profile update" will be shown in the top right corner.

• The User must update his profile as a "business user" and fill the necessary details to complete the profile.

• After successfully updating the profile, the User will again login into the Portal, and the User will obtain the OTP on the enrolled phone no and mail id. 

• After submitting the OTP, the User will see all the web forms available in their login and ready to fill the forms.

Note: The session will get expire after 5 min of inactivity. The User will be reported after 4 min of inactivity before you are logged off.

 

User Registration & Login-Highlights

 

1: Simplified Username & Registration Process

• PAN Number Validation
• Register using Email id or CIN/LLPIN/FCRN as username

2: Streamlined Authorization/ Suspension Process

• Right to authorize Manager/Secretary/Officer in default/Authorized Representative to access   
•  FO service (on behalf of the company/LLP)

 

 3: Refined User types, Roles and Groups

•  Service Accessibility control base User role and groups

 4: Email ID & Mobile OTP Validation

• One-time OTP validation during registration

 5: Easy User ID and password recovery

•  Two-step easy user ID & Password recovery through PAN & Hint question Validation

6: Additional Security Checks

• OTP validation in case of login from a different device

• Session expiry after 5 minutes of inactivity

•  Latency period check

 FAQs

 

1: How much time the registration process takes?

 

The User can immediately start filing LLP related forms once they have registered as a new user in V3. However, it would take 4 – 5 hours for the user registration to be effected for V2 filings for Companies to be able to begin filing Company forms. Users will receive two different passwords, one each for LLP filing and Company filing upon completion of registration.

 

2: Can an LLP carry on multiple business activities? 

 

Yes, LLP, registered in India, can carry more than one business, provided the activities must be in the same field itself or related. Unrelated Activities which are not related, such as Interior Designing and Legal consultancy, cannot be carried out under the same LLP. The business activities must be approved by RoC and are mentioned in the agreement.

 

3: If a person has filed webform 3 and webform 4 for the cessation of partners from the LLP and the webform are pending for approval. Can another webform 3 and webform 4 be filed for the appointment of other partners in the LLP? 

 

 In this case, the filing shall not be allowed if there is any web form 3 and any web form 4 for cessation of a designated partner or partner pending for payment of the fee or any web form 3/4 is under Processing in respect of the LLP.

 

4: What are the major differences between the Business User and the Registered User?

 

Registered users comprise any individuals. Such users can perform the following two functions in the LLP module – 

• RUN Form

• Fillip form. 

A business user can access and file all the forms. The most suitable category may be selected:

• Company/LLP 

• Director/Designated Partner

• Manager/Secretary/Authorized Representative

• Officer in Default

• Professional

However, the "Professional User" in V3 was earlier termed as "Practicing Professional" in the V2 Portal.

 

Overall, there is no change in the naming or position of a Business user between V2 and V3.

 

6: Can a Registered User upgrade to a Business User?

 

Yes, a Registered User can upgrade itself to a Business User; one must not create new login credentials as a Business user. To upgrade the account, the following needs to be done. 

 

Registered users can also upgrade in V2 to Business User in V3 by following steps:

 

a. First, Sign in to the Portal.

b. Next, in the Right-Hand Corner, "Hello – Your Name" will Display.

c. Click on the above icon

d. Select the Profile Update Page

e. Next, click on Add Role

f. Select Business User Role and then select the appropriate options

 

7. If I am an existing user, do I need to re-register again?

 

You need not register once again if you are an existing user in V2. The system will identify the mail id given by the User as a duplicate id and does not permit a registration. The User will be permitted to create as a new user only with a new mail id. If the User is already registered in V3, then it is not needed to get new registration in V2.

 

8. Can a person has the same user id both as a CA in Professional Role as well as a Director role?

 

No. the User cannot have multiple roles under the same user id. However, a user can upgrade the part. For instance, if one is a Professional (existing), the User can upgrade to the following roles:

 

a. Director/Designated Partner

b. Manager/Secretary/Authorized Representative

 

Source:https://www.manishanilgupta.com/blog-details/recent-changes-in-mca-portal-v2-with-new-web-based-v3-portal-for-llps

 

Understanding Form 10BD – A New Step Towards Bringing in More Transparency in Donation Reporting System

It is a very common thing for charitable institutions such as schools, colleges, universities and research institutions to receive donations. However, sometimes such claims for donations can be either false or fraudulent. Many such fraudulent claims have tried to take advantage of Section 80G of the Income Tax Act, 1961, which allows the donors a deduction for the amount donated by them to the recognized charitable institutions. Besides, earlier, the procedure for reporting donations was manual, thus providing room for some discrepancies. 

To tackle all such issues and bring more transparency in reporting donations, the Income Tax Department of the Government of India has notified vide notification no. 19/2021-Income Tax, that all the persons receiving donations will have to declare the details of the donations received during the financial year in Form 10BD. Contrary to the earlier manual mode of reporting donations, the new rules make it mandatory for the donations to be reported online. Besides, it is to be noted that a certificate shall have to be issued to all such donors via Form 10BE by the recipients of such donations. 

This article tries to provide every important detail about Form 10BD application and questions related to it, such as ‘How to file Form 10BD online?’, ‘Does a person need consultants for filing Form 10BD?’ etc. Now let’s look into the details of Form 10BD.

Who will have to file Form 10BD?

Rule 18AB of the Income Tax Act, 1961 is applicable to all such entities (charitable institutions) which have approval u/s 80G and u/s 35(1) of the Act. For these institutions, Form 10BD filing has been made mandatory. It requires them to file a statement of donations (through Form 10BD) beginning from the financial year 2021-2022. All the research institutions, colleges, universities or other institutions which come under clause (i) to section 35 (1A) of the Income Tax Act will also be required to furnish the details of donations in Form 10BD. Apart from this, as mentioned in the beginning, the reporting entities will have to provide a Certificate of Donation to all such donors through Form 10BE.

What is the due date for filing Form 10BD? 

According to the new rules, Form 10BD needs to be filed every year starting from the financial year 2021-2022. It has to be filed annually. Rule 18AB (9) says that Form 10BD needs to be filed on or before 31st May, which immediately follows the end of the financial year in which the donations were received. For instance, if donations were received in the financial year 2021-2022, then Form 10BD needs to be filed on or before 31st May 2022.

What is the procedure for filing Form 10BD?

Form 10BD has to be filed electronically/digitally through the website (e-portal) of the Income Tax Department. The form needs to have the digital signature of the person authorized to sign the ITR of the reporting entity. 

What details are needed for Form 10BD?

The following details are required for filing the form:

* Details of the Reporting person receiving the donations

     * PAN

     *  Reporting Period (Financial Year)

* Details of the Donor –

* The Unique Identification number; it can be either PAN or Aadhar number.

     * In case neither of the above are available, fill in one of the following – Passport Number/ Tax Payer Identification Number (in case of a foreign resident)/ Voter ID No./ Ration Card Number/ Driving License Number.

     * Section Code:

* Section 35(1)(iia)

* Section 35(1)(ii)

* Section 35(1)(iii)

 * Name and Address of the Donor

* Donation Type:

     * Corpus

     * Specific Grants

     * Others

* Mode of Receipt 

     * Cash

     * Kind

     * Electronic Modes, which includes draft and payee cheque

     * Others

* Amount of Donation

Certificate of Donation

After filing Form 10BD, the reporting party needs to provide the donors with a Certificate of Donation through 10BE so that the donors can claim deductions u/s 80G or section 35 of the Income Tax Act. Form 10BE can be downloaded after Form 10BD has been successfully filed. 

What if the reporting entity delays or fails to file Form 10BD? 

OR

What is the late fee in the case of Form 10BD?

If the reporting person fails to file Form 10BD within the stipulated time (that is, in case of a delay), due to any reason whatsoever, then such a person shall be liable to pay a penalty of Rs. 200/- per day of non-filing as per the new section 234G of the Income Tax Act, 1961. Apart from this, if the reporting entity fails to furnish the statement of donations through Form 10BD, then according to section 271K, such a person shall attract a penalty of not less than Rs 10,000, which may even extend up to Rs 1,00,000.

Is it possible to revise Form 10BD?

Yes, in case any unintentional errors were made in the form, it is possible for the reporting person to rectify those errors in Form 10BD through a correction form.

Do you need consultants for filing Form 10BD?

Although Form 10BD can be easily filed online, however, if you are facing any difficulty or doubts, it is best to contact an experienced and reputed tax consultant.

Other Details:

1: Reporting Multiple Donations from the same donor – All the donations from every single donor have to be aggregated, and only a consolidated amount of such donations is required to be reported. However, aggregating such donations is subject to the condition that the ‘Donation Type’ and ‘Mode of Receipt” for all such donations remain the same.

2: Anonymous Donations – Anonymous donations indicate that the person receiving donations has no record of the identity of the person making such donations. Such donations cannot be reported. Nevertheless, a limit of Rs. 1,00,000 or 5% of total donations received, which is higher, has to be acknowledged while making the reconciliation statement for any difference in the ITR/audit reports and the amount of reported donations.

Conclusion:

Form 10BD has made the role of the donation receiving entities more crucial in bringing out the transparency about the donations. As per the new rules, it is not only enough to declare the details of donations in Form 10BD, but it is equally imperative to furnish a Certificate of Donation to the donors via Form 10BE. These rules are also going to be a turning point in bringing more transparency to the reporting system of donations because now all the details of the donations will be easily available in Form 26AS and AIS.

 

Source:https://www.manishanilgupta.com/blog-details/understanding-form-10bd-a-new-step-towards-bringing-in-more-transparency-in-donation-reporting-system

Decoding Sections 54 and 54F of the Income Tax Act, 1961

 People might buy capital assets to ensure present and future financial security, be independent in any event of financial hardship or create a source of funds for their future financial goals. But, when they sell these capital assets, the profit that they earn from such a sale is called a capital gain. Such a gain is chargeable to tax under the Income Tax Act, 1961. However, certain provisions of the Income-tax law allow taxpayers to claim specific exemptions against such gains, which help them reduce their tax liability. So, are you wondering how to save capital gain tax? You can save tax on your capital gains by availing the benefit of the provisions of two important sections of the Act,which are sections 54 and 54F.

Let’s look at what these sections are all about by giving a read to this article.

1: Exemption under Section 54

As per Section 54 of the Income-tax Act, an individual or HUF can avail tax exemptions on long-term capital gains arising on transfer of a residential house property if the amount of such capital gains is invested in purchasing or constructing another residential house property.

The primary conditions that need to be satisfied to avail the benefit of this section are as follows:

• The exemption under 54 is available only to an individual or HUF. Taxpayers such as partnership firms, LLPs, companies, AOPs or BOIs cannot claim relief under this section.

• The transferred asset should be a long-term capital asset, being a residential house property.

• Income (if any) from such transferred residential house should be chargeable under the head 'Income from House Property’.

• The seller should, within one year before or two years after the date on which the transfer took place, purchase, or within three years after that date, construct one residential house.

• The new residential house property should be in India. The taxpayer cannot purchase or construct a residential house abroad and claim the exemption under this section.

The conditions mentioned above are cumulative. Hence, even if one requirement is not fulfilled, the assessee will not be able to claim the benefit of the exemption u/s 54.

With effect from AY 2021-22, section 54 has been amended to extend the relief of exemption for the investment made in two residential house properties in India. The exemption for the investment made to purchase or construct two residential house properties shall be available only if long-term capital gains do not exceed Rs. 2 crores. It must be noted that once the taxpayer avails of this option, he shall not be eligible to exercise it again for the same or any other assessment year.

Amount of Exemption

A taxpayer can avail exemption on long-term capital gains of an amount lower of the following:

• Capital gains arising on transfer of the long-term residential house property; or

• Amount invested in purchasing or constructing new residential house property.

Restriction on Transfer of the New Residential House Property

The government has inserted a restriction in section 54 to ensure that the new house property purchased to claim the exemption under this section is retained for a particular period, and the provisions thereof are not taken undue advantage of. The restriction is in the form of prohibition on the sale of the new house property within three years from the date of its purchase or construction, as the case may be.

If the exemption is claimed under section 54 and the new house is sold within three years from its purchase or construction, then at the time of computation of capital gain arising on transfer of such new house, the amount of exemption claimed on capital gains u/s 54 will be subtracted from the cost of acquisition/construction of the new house. Consequently, the cost of acquisition/construction of the new house property will decrease or become nil, as the case may be, resulting in higher capital gains on the transfer of such property.

Let us have a look at the below illustrations to have a better understanding of the provisions of section 54:

Illustration 1

Mr. Verma purchased a residential house in May, 2015 and sold the same in May, 2021 for Rs.7,45,000. He made a capital gain of Rs.1,50,000 on such sale. Can he avail the benefit of section 54 by purchasing/constructing another residential house from the capital gain of Rs.1,50,000?

Ans.Exemption u/s 54 can be claimed in respect of capital gains arising on transfer of a capital asset, being a long-term residential house property. This relief is available only to an individual or HUF. In this case, all the conditions provided in section 54 are satisfied. Hence, Mr. Verma can claim the benefit of section 54 by purchasing/constructing a residential house within the time limit as provided under section 54 (mentioned above). 

Illustration 2

Mr. Kapoor purchased gold in June, 2016 and sold the same in August, 2021 for Rs.8,90,000. Capital gain arising on the transfer of gold amounted to Rs.1,30,000. Can he claim the exemption u/s 54 by purchasing/constructing a house from the capital gain of Rs.1,30,000?

Ans. Exemption u/s 54 can be claimed on capital gains arising on transfer of a capital asset, being long-term residential house property. In this example, since the capital asset is gold, i.e., other than a residential house, the exemption of section 54 is not available. However, in this case, the benefit can be claimed under section 54F subject to certain conditions defined in that provision (Discussed in subsequent paragraphs).

Illustration 3

Mr. Goyal purchased a residential house in October, 2021 and sold the same in May, 2022 for Rs.9,40,000. Capital gain arising on such sale amounted to Rs.3,50,000. Can he claim the exemption under section 54 by purchasing/constructing another residential house from the capital gain of Rs.3,50,000?

Ans.Exemption u/s 54 can be claimed on capital gains arising on transfer of a capital asset, being long-term residential house property. An immovable property qualifies as a long-term capital asset if its holding period exceeds 24 months. In this case, the house property is transferred after holding it for less than 24 months and, therefore, it is a short-term capital asset. The benefit of section 54 cannot be availed in respect of a short-term capital asset, and, thus, in this case, Mr. Goyal cannot claim the benefit of section 54.

   I.   Exemption under Section 54F

As per section 54F of the Income-tax Act, an individual or HUF can avail tax exemptions on capital gains on transfer of a long-term capital asset other than a residential house if the amount of such capital gains is invested in purchasing or constructing a residential house property in India.

The basic conditions that need to be satisfied to avail the benefit of section 54F are as follows:

• The exemption under 54F is available only to an individual or HUF.

• The exemption is available on the capital gains arising on the transfer of any long-term capital asset other than a residential house property.

• The taxpayer should invest the net consideration received on transfer of the original asset in either of the following:

• To purchase one residential house in India within a period of one year before or two years after the date of transfer of the original asset.

• To construct one residential house in India within three years after the date of transfer took place.

For this section, the ‘net consideration’ in respect to the transfer of a capital asset means the total value of the consideration received or accruing in relation to the transfer of the capital asset as reduced by any expenses incurred exclusively in connection with such transfer.

Amount of Exemption

Case 1: Cost of the new asset exceeds the net consideration in respect of the original asset

If the cost of purchasing or constructing the new asset is more than the net consideration received or accrued in relation to the transfer of the original asset, the whole amount of capital gain shall be exempted under section 54F.

Case 2: Cost of the new asset is less than the net consideration in respect of the original asset

In case the entire sale consideration is not invested in the new asset, i.e., if the cost of the new asset is lower than the net consideration in relation to the original asset, then exemption shall be allowed proportionately in the following manner:

Amount of exemption = Long-term capital gain * (Amount invested in the new asset/Net saleconsideration)

Circumstances in which Exemption u/s 54F is not Available

The circumstances in which the exemption u/s 54F is not allowed are as follows:

• The taxpayer has more than one residential house, other than the new asset, on the date of transfer of the original asset.

• The taxpayer purchases any residential house, other than the new asset, within one year after the date of transfer of the original asset, and the income from such residential house is chargeable under the head 'Income from house property’.

• The taxpayer constructs any residential house, other than the new asset, within three years after the date of transfer of the original asset, the income from which is chargeable under the head 'Income from house property’.

In case of the taxpayer purchases, within two years after the date of the transfer of the original asset, or constructs, within three years after such date, any residential house, the income from which is chargeable as 'Income from house property’, other than the new asset, the amount of capital gain on transfer of the original asset that was exempted u/s 54F shall be charged as long-term capital gains in the financial year in which such residential house is purchased or constructed.

Restriction on Transfer of the New Residential House Property

As in the case of section 54, the similar lock-in period of three years on the transfer of the new residential house from the date of purchase or construction, as the case may be, is applicable u/s 54F also.

If the exemption is claimed under section 54F and the new house is transferred within three years from the date of its purchase/construction, the amount of capital gain arising from the transfer of the original asset exempted in the year of such transfer shall be charged as long-term capital gains of the financial year in which such new asset is transferred.

Note: For section 54F, if the assessee owns more than one residential apartment or residential unit in the same building on the date of transfer of the asset, it will be treated as one residential house property only. This view has been constructed by placing reliance on the following case judgements:

1. SHRI. NAVIN JOLLY C/O NAVIN ARCHITECT PRIVATE LIMITED VERSUS THE INCOME-TAX OFFICER, WARD 11 (1) [2020] 424 ITR 462 (Kar)

It was held that “The assessee even otherwise is entitled to the benefit of exemption under Section 54F(1) of the Act as the assessee owns two apartments of 500 square feet in the same building and therefore, it has to be treated as one residential unit”.

2. SRI S.M. VINOD, L/R OF LATE SM MUNIYAPPA VERSUS THE INCOME TAX OFFICER, WARD 7 (2) (1), BANGALORE [ITA No.192/Bang/2020 (Assessment year: 2016-17)]

It was held that “The assessee owns one independent building which has two units one in the ground floor and another in the first floor and having two units cannot change the nature of the building, it remains as “one residential house” as in the case of Shri Ramaiah Harish [2021 (9) TMI 1138 - ITAT BANGALORE]. Thus, we direct the AO to allow deduction u/s. 54F of the Act. The grounds raised by the assessee are allowed.”

Now that we have gone through the provisions of section 54F, let us have a look at the below illustrations to understand the section better:

Illustration 1

Mr. Sharma purchased a residential house in March, 2016 and sold the same in May, 2021 for Rs.7,50,000. Capital gain on sale of the house property amounted to Rs.2,50,000. Can he claim the benefit of section 54F by purchasing/constructing a house from the capital gain of Rs.2,50,000?

Ans. Exemption under section 54F can be claimed in respect of capital gains arising on transfer of a long-term capital asset, not being a residential house property. In this case, since the capital asset is house property, the benefit of section 54F will not be available.

Illustration 2

Mr. Jain sold a long-term capital asset, other than a residential house property, for Rs. 60 lakhs and made a capital gain of Rs. 6 lakhs. He invested the entire amount of Rs. 60 lakhs to purchase a house property in India. He owns only one house on the date of sale of the asset. Calculate the amount of capital gain that would be exempt under section 54F.

Ans. Since Mr. Jain has invested the whole amount of capital gains in purchasing the new house and satisfies all the required conditions to claim the exemption, he can claim the entire amount of long-term capital gain, i.e., Rs. 6 lakhs, as exemption under section 54F.

Illustration 3

In illustration 2 above, assume that Mr. Jain invested only Rs. 35 lakhs towards the purchase of the house property. Now, calculate the amount of exemption on capital gains that he can claim u/s 54F.

Ans. Since, in this case, the amount invested in the new asset is less than the net sale consideration, the exemption would be calculated as follows –

Amount of exemption = Long-term capital gain * (Amount invested in the new asset/Net sale consideration)

= 6 lakhs * 35 lakhs/60 lakhs

= Rs. 3.5 lakhs

Hence, in this case, Mr. Jain can claim the exemption of Rs. 3.5 lakhs under section 54F.

Concept of Capital Gains Account Scheme

As mentioned above, to claim benefits under sections 54 and 54F, the taxpayer must purchase a residential house within a period of one year before or two years after the date of transfer of the long-term capital asset or should construct the same within three years from the date of transfer. If till the date of filing the Income-tax return, the capital gain, in case of section 54, and net consideration, in case of section 54F, on the transfer of the original asset, is not utilised (in whole or part) to purchase or construct the new house property, then the benefit of exemption can be claimed by depositing such unutilised sum in Capital Gains Deposit Account Scheme. The new house property can be purchased or constructed by withdrawing the amount from the said account within the specified time limit of two years or three years, as the case may be.

Unutilised amount in Capital Gain Account Scheme

If the sum deposited in the Capital Gains Deposit Account Scheme in respect of which the assessee has claimed exemption under section 54 or 54F is not utilised within the specified period for purchasing or constructing the residential house, then the unutilised amount will be taxed as long-term capital gains in the year in which the specified period of three years from the date of transfer of the original asset gets over.

Similarities between sections 54 and 54F

There are several common provisions under section 54 and section 54F that are as follows:

• A new residential house property must be purchased or constructed to claim the exemption.

• The new residential house property must be purchased within one year before or two years after the transfer of the original asset.

• Alternatively, the new residential house property must be constructed within three years from the date of transfer of the original asset.

• Both the sections state a similar lock-in period of three years for transfer of the new asset from the date of purchase or construction of the original asset, as the case may be.

• The option of depositing the unutilised amount of capital gains in the Capital Gains Account Scheme is available under both sections.

Section 54 v/s Section 54F

Section 54 and section 54F differ in various aspects, some of which are as follows:

• The main difference lies in the asset on which the exemption is available under each section. The exemption u/s 54 is available on long-term capital gain on the transfer of a residential house property. Whereas, under section 54F, the exemption is available on long-term capital gain on the transfer of any asset other than a residential house property.

• To claim full exemption u/s 54, the entire capital gains must be invested in the new asset. In contrast, the total net consideration must be invested in the new asset to claim full exemption under section 54F.

• Once in a lifetime option is available of claiming exemption on capital gains under section 54 on investing such gain in two properties if the amount of capital gains does not exceed Rs. 2 crores. No such option of investment in two assets is available u/s 54F.

• The taxpayer should not own more than one residential house, other than the new asset, on the date of transfer of the original asset to claim exemption u/s 54F. There is no such restriction stated in section 54.

• In case the entire capital gains are not invested in the new asset, then u/s 54, the invested amount is exempted, and the remaining amount is charged to tax as long-term capital gains. Whereas, u/s 54F, if the entire net consideration is not invested, the exemption is allowed proportionately (explained in the above paragraphs).

Summing up

After reading this blog, it can be concluded that if the sale and purchase of capital assets are planned keeping in mind the provisions of sections 54 and 54F, a taxpayer (individual & HUF) can save a considerable amount of taxes. Hence, the taxpayers must carefully understand these provisions and plan their investments in such a way so that they are able to reap the benefits of the relief provided under the said sections. If the taxpayers face difficulty on how to compute capital gain tax or have confusion in calculating capital gain exemption on sale of house property or any other capital asset, they should consider consulting a capital gain tax expert who can provide them with the correct guidance.

Source:https://www.manishanilgupta.com/blog-details/decoding-sections-54-and-54f-of-the-income-tax-act-1961