Accounting For Taxes & Exemptions By Financial Year

Certain investments, exemptions and capital losses and gains need to be accounted for within the financial year to which they apply, and cannot be carried forward to subsequent years. However, refunds on excess tax deducted for a financial year can be claimed while filing the tax returns for that year.

• The proviso to Section 54EC(1) of the Income Tax Act, 1961 states that the investment made on or after 1st April, 2007 in long-term specified assets (specified Capital Gains Bonds) by an assessee during any financial year cannot exceed Rs 50 lakh. The provision does not clarify whether the limit would apply in case the capital gains relate to two different financial years, even if the investment falls in the same financial year.
• In case you have missed the deadline for declaring your tax saving investments for a financial year, you can declare the same while filing your tax returns for the said year.

Q1: I have sold a residential property in January 2012 and another residential property in May 2012. The profit I made from each of the sales is around Rs 50 lakh. I propose to invest in Capital Gains Bonds eligible for exemption u/s 54EC of the Income Tax Act within six months of the sale of the asset. As far as I know, there is a limit of Rs 50 lakh for one financial year with respect to investing in REC Bonds. However, as they are investments in respect of sale of long term assets in two different financial years, can I invest Rs 50 lakh for each of the sale in such bonds even if the aggregate of the investment that crosses the limit of Rs 50 lakh falls in the same financial year, viz. FY 2012-13?

- C. B. Advani

Reply - The proviso to Section 54EC(1) of the Income Tax Act, 1961 states that the investment made on or after 1st April, 2007 in long-term specified assets (specified Capital Gains Bonds) by an assessee during any financial year cannot exceed Rs 50 lakh.

The above provision does not clarify whether the limit would apply in case the capital gains relate to two different financial years, even if the investment falls in the same financial year. The law on this issue is also not clear. Whereas the Ahmedabad Tribunal (in the case of Aspi Ginwala) has held that the assessee is entitled to such an exemption, the Jaipur Tribunal in the case of Shri Raj Kumar Jain & Sons (HUF) has taken a contrary view, holding that the exemption under Section 54EC is to be restricted to Rs 50 lakh even if the aggregate amount were invested in specified bonds within the prescribed time limit falling in two different financial years.

Hence, if you invest the amount of capital gains for the sale of the two residential houses in the two different financial years, you may be allowed to claim the benefit of exemption only to the extent of Rs 50 lakh and you may be required to pay tax on the balance capital gains even though you may have invested the full amount.

The author’s personal view is that amendments should be effected in the law to clarify the position, and that the view of the Ahmedabad Tribunal should be amended.

Q2: For the elapsed financial year, I had made tax savings investments at the last minute. As a result, I could not submit the proofs of investment to my employer for tax benefits and a lot of tax was deducted at source by the employer. Is there any way to still show the tax saving investments and get a refund of the excess tax deducted?

- Parth Vyas, Mumbai

Reply - Yes, you can certainly declare the tax saving investments while filing your tax returns for the said financial year and claim a refund of excess tax that your employer has deducted.