Q616. Deposit capital gains in

Capital Gain Account Scheme to

save taxes . . .

Question: Dear Sir, I firstly appreciate your wonderful services given to NRI's in terms of lot of clarifications. Excellent!! I am a NRI and staying in Gulf region past 7 years. I have sold off my own flat in India this year April for 45 lakhs, and the amount was transferred by Buyer to my Current Savings Bank Account in India. My property falls under the "Long Term Capital Gains" as I bought on 2005. I thoroughly understand your step by step capital gains calculation after read the Question No.211. Now, I have booked my new flat (which is under construction, expected completion by Dec 2014), and 70% (45lakhs * 70% = 32 lakhs) of my amount is used for my new flat (money transferred from my Savings Account to Builder). The remaining amount ( 45 - 32 = 13 lakhs) will be utilised by Dec 2014 for my new flat. Now, please clarify the following points : 1. Whether I have to file "Income tax return" against my LTCG? I understand that if I use the capital gain amount within 2 years to buying new property, no need to file "Income tax return". Is this right? 2. If I have to file "income tax return", I would follow your Q.No.211 procedure. In that calculation, whether I should show the income, other than capital gains such as "tenant payments" etc.,? I would highly appreciate your valuable reply. Thanks and Regards (Name withheld on request) Answer: Regarding your questions: 1. Your assumption that you do not have to file income tax return is not correct! Any NRI who earns short or long term capital gains from the sale of property in India must file a tax return in India even if the gain amount is less than the allowed basic tax exemption! So you should file income tax return. 2. The procedure to save on capital gains by investing in another property within the specified period has some rules that should be followed. Generally in such cases where the new property being acquired is under construction, the capital gain amount should be deposited in a special bank account referred to as Capital Gain Account Scheme (CGAS). Money from this account should be withdrawn solely for the purpose of making payments for the new property. Check with a chartered accountant or your bank for guidance on this matter and you can get help in setting up the necessary bank account and filing your tax return.