Question And Answer
Subject: Long term Capital Gains from sale of flat – whether brought forward long term capital loss to be setoff before deduction u/s.54EC
Querist: G. K. Sureka
Answered by:
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Date: August 3, 2021
Query asked by G. K. Sureka

An assessee has earned long term capital gain on sale of his share of flat after determining the indexed cost.  He wishes to obtain exemption for the gain by investing in bonds u/s.54EC.  He also has brought forward long term capital loss which he would to set off against future gains on sale of shares.  Whether the long term capital gain on sale of flat has to be determined by first deducting the brought forward loss and he can avail the benefit of Section 54EC only in respect of the balance income?

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. As we understand, it would be necessary to first compute the Capital Gains of the year under consideration and subsequently set off with carried forward losses.

Therefore, the taxpayer would have to first give effect to exemption claimed under section 54EC of the Income-tax Act, 1961 (Act) and then claim a set off of brough forward long-term capital losses.

The above explanation is buttressed with reliance being placed on the decision of the Hon’ble Madras High Court in the case of CIT v. Vijay M. Mahtaney [2013] 35 228 (Madras) wherein it was held that assessee can first compute capital gains by claiming exemption under section 54EC of the Act and then apply provisions for set off of capital loss as per sections 70 and 74 of the Act.

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