CMA Intermediate · Direct and Indirect Taxation · Capital Gains

Mrs. Meera Nair, an individual, sold a long-term capital asset (not a house) on 10 June 2026 and claimed full exemption under section 86 after depositing the unutilised net consideration under the notified scheme before filing her return. She could not complete purchase or construction of the new house, and in the deposit scheme she actually utilised only part of the amount. Which statement correctly states the tax consequence under section 86(4)?

The amount X minus Y is charged as income of the tax year in which three years from the transfer date expire. X is the gain previously not charged, and Y is the gain that would have been exempt using only the amount actually utilised. The assessee may withdraw the unutilised deposit.

1. AThe unutilised amount is withdrawn and nothing is taxed
2. BThe whole exempted gain is charged in the year of transfer by reopening that year
3. CThe amount X - Y, where X is the gain not charged earlier and Y is the gain that would have been exempt had the cost been the amount actually utilised, is charged as income of the tax year in which three years from the date of transfer expireCorrect
4. DThe unutilised deposit itself is charged as income in the year in which two years from transfer expire