Capital Gain exemptions in India – 54, 54B and more

Presently a lot of capital investments are being made by individuals with a future prospective. The profits which the investors realize from the sale of Capital asset are termed as Capital gain. In this article, we have discussed Capital Gain exemptions in India – 54, 54B and more

The profit arrived from the sale of asset is categorized as Short-term capital Gain (STCG)and Long- term Capital gain(LTCG) depending on the tenure for which the asset was held. The rates of taxes are different for STCG and LTCG. The amount of taxes paid on STCG and LTCG can be minimised by taking benefits of exemptions available under different sections provided by Income Tax Act.

CAPITAL GAIN

We have mentioned below the details of few exemptions available to an Individual or an HUF.

Exemption u/s 54 –Long term Capital arising on transfer of residential house shall be exempted u/s 54 if the following conditions are satisfied:

 1. The assessee has purchased another residential house within 1 year before or 2 years after the sale of house.

 2.Or, the assessee has constructed a new house or has purchased a site and constructed a house thereon, within a period of 3 years after the sale of the original house.

If within a period of 3 years from the date of acquisition the new property is sold then the cost of acquisition of this new house property shall be reduced by the amount of exemption claimed earlier.

The amount of Capital Gain which is not utilised by the assessee should be deposited by the assessee in Capital Gain Deposit Account within the return filing due date. The amount so deposited which is not utilised shall be chargeable as capital gain of the year in which the period of 3 years is completed from the date of sale of property.

Exemption u/s 54 EC -Long term capital gain arising on transfer of any long term capital asset shall be exempted u/s 54EC if the following conditions are satisfied:

 1.The assessee has within 6 months from the date of transfer has invested the amount so gained in Rural Electrification bonds or National Highway Authority of India bonds with a lock-in period of 3 years.

 2.The amount of investment which can be made is subject to a maximum limit of Rs 50 lakhs.

The amount of exemption which is claimed will be withdrawn if the assessee has sold the bonds within three from the date of purchase.

Exemption u/s 54B- Long term or Short term capital gain arising on transfer of agricultural land by an Individual or an HUF shall be exempted u/s 54B if the following conditions are satisfied:

 1.The land has been used for agricultural purpose in the 2 years immediately preceding the date of transfer by the individual or his parents or HUF.

 2.The assessee has purchased another land (urban or rural) for agricultural purpose within 2 years from the date of transfer.

The amount of exemption which has been claimed by the assessee will be withdrawn if the newly purchased agricultural land is sold by the assessee within 3 years from the date of purchase. The cost of acquisition while calculating the STCG in the year of sale will be reduced by the amount of exemption claimed earlier.

Exemption u/s 54F– Exemption u/s 54F is provided is respect of LTCG arising to an Individual or a HUF on transfer of any Capital asset other than residential house. In order to avail the exemption the following conditions must be satisfied.

 1.The assessee has purchased a residential house in India within 1 year before or within 2 years after the date of transfer.

 2.The assessee constructs a residential house within 3 years.

  3.The assessee should not own more than 1 residential house other than the new house on the date of transfer of original assets.

If the entire sale proceeds is not invested then exemption shall be allowed proportionately.The amount of exemption which will be available is calculated on the basis of “Cost of New house” and “Net Consideration”.

Exemption=      Cost of New house X LTCG 
                           Net Consideration (Full Value Consideration – Expenses related to Sale)

                 

However similar to above mentioned sections the assessee can also claim exemption by depositing the amount in Capital Gains Accounts Scheme.  If any amount in Capital Gain Account is unutilised the same will be taxable as LTCG on the expiry of 3 years from the date of transfer. The amount of exemption claimed will be withdrawn if the assessee transfers the new house within 3 years of its purchase/construction.

 

These are some sections under which Individuals or HUF having huge amount of Capital Gains from sale of Capital assets can claim exemptions or save their taxes by investing according to conditions mentioned. It is very important to mention such details correctly in the Income Tax return which will be filed by an assesee.

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