Capital gains tax 54b query

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Shubham Goyal

1. 20% with indexation if it is a long term capital asset

2. First you have to pay the tax and submit the required documents manually to the jurisdictional AO. JAO will issue the closure letter directly to the bank. You can not withdraw from CGAS to pay the taxes

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The capital gains tax rate will remain 20% with indexation, as per the law applicable when the land was sold in July 2023. The 12.5% rate applies only to sales made after July 23, 2024, and does not affect earlier transactions, even if the CGAS is withdrawn in July 2025.

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

Q1. Applicable Tax Rate: 12.5% or 20%?

The applicable tax rate on capital gains depends on the nature of the asset and the holding period:

1. Nature of Asset (Urban Agricultural Land):

   • Since this is urban agricultural land, it is not classified as agricultural land for exemption purposes under Section 2(14) of the Income Tax Act. Instead, it is considered a capital asset, and the sale of this land triggers capital gains tax.

2. Holding Period:

   • If the land was held for more than 24 months, the gain will be treated as long-term capital gains (LTCG) and taxed at 20% with indexation benefits.
   • If the holding period is 24 months or less, the gain will be treated as short-term capital gains (STCG) and taxed at slab rates applicable to your father.

In most cases of urban agricultural land, 20% tax with indexation is applicable because such assets are usually held for the long term.

Q2. Procedure to Withdraw Funds from Capital Gains Account

1. Purpose of Capital Gains Account:

   • A Capital Gains Account Scheme (CGAS) is meant for parking funds temporarily until they are used for the intended purpose, such as buying another agricultural land or constructing a house. The bank allows withdrawals only for these specified purposes under the Income Tax Act.

2. Withdrawals for Paying Tax and Retaining Funds:

   • To withdraw the amount for paying capital gains tax and keeping the balance, you need approval from the Assessing Officer (AO) under Section 119(2)(b). The steps are as follows:

     • 
       Step 1: File an application with your AO explaining the situation, including:

       • Your father's demise and your role as the legal heir.
       • The fact that you filed his ITR and opened the CGAS account in your name.
       • Your intention to withdraw the funds to pay the applicable capital gains tax and use the balance amount as per your discretion.

     • 
       Step 2: Attach relevant documents:

       • Death certificate of your father.
       • Proof of your status as legal heir.
       • Copy of the ITR filed for your father.
       • Bank statements and details of the CGAS account.

     • 
       Step 3: Once approved, present the AO’s approval to the bank to withdraw the amount.

What Happens If You Withdraw Without AO Approval?

• If you withdraw the funds without using them for the specified purposes, the entire amount becomes taxable as long-term capital gains in the year of withdrawal.
• However, since you intend to pay the tax and keep the remaining amount, it is advisable to get AO approval to avoid disputes.

Recommendation:

1. 
   Approach the AO: Submit a formal request to the AO for permission to withdraw the funds for paying taxes.
2. 
   Tax Payment: Compute the capital gains tax (20% for LTCG or slab rates for STCG) and pay it on time to avoid penalties.
3. 
   Retain Balance: After approval and tax payment, you can retain the remaining amount.