Exemption under Capital Gain
Introduction
When sales of capital assets results into capital gain either long term or short term, then these are taxed under Income Tax Act and there are some deductions available to save tax on sale of capital assets. The capital gain deductions are only available if the certain conditions as prescribed under the relevant section are complied with. Let us look at all the conditions like what deductions are available and what the terms and conditions to be complied with :
Section 54: Transfer of residential house properties
This section is applicable to Individual/HUF in case of residential house property is transferred.
Conditions for availing this exemption:
- Gain should be long term Capital gain (LTCG).
- Income from such a house should be chargeable as Income from House Property
- The amount should be reinvested in one residential house property situated in India.
- The time limit for investments in case of purchase within a period of 1 year before or 2 years after, from the date of transfer or in case of construction within a period of 3 years from the date of transfer.
- New Residence property should not be sold within 3 years from the date of acquisition or construction otherwise it will be taxed as capital gain.
- The amount should be utilized before due date of filing ROI and if amount not utilized within prescribed period shall be treated as LTCG of previous year in which the prescribed time limit expires.
- Exemption amount will be minimum of:
- Investment in new residential house, or
- Capital Gain
Section 54B: Transfer of urban agricultural land
This section is applicable to Individual /HUF in case of urban agricultural land used for agriculture by him or by his parents for 2 years immediately prior to date of transfer.
Conditions for availing this exemption:
- Assessee should hold agriculture land at least 2 year preceding the date of transfer
- The amount should be reinvested in any agricultural land (urban/rural)
- Investment in new agricultural land should be made within 2 years from the date of transfer.
- The new asset should not be sold for 3 years from the date of acquisition.
- If amount not utilized within prescribed time shall be treated as capital gain of previous year in which the prescribed time period is expire.
- The exemption amount should be minimum of:
- Investment in new agricultural land, or
- Capital Gain
Section 54D: Transfer of Land and Building forming part of industrial undertaking
This section is applicable to all assessee in case of transfer of Land and Building forming part of industrial undertaking
Conditions for availing this exemption:
- Assessee should hold land and building for at least 2 years preceding the date of transfer
- Transfer should be by way of compulsory acquisition of the industrial undertaking.
- Assessee must purchase any other land or building or construct any building within 3 years from the date of transfer.
- The new asset should not be sold for 3 years from the date of acquisition.
- The exemption in respect of Capital gain from transfer of capital assets would be available even in respect of short term capital asset.
- If amount not utilized within prescribed time shall be treated as capital gain of previous year in which the prescribed time period is expire.
- The exemption amount should be minimum of:
- Cost of new assets, or
- Capital Gain
Section 54EC: Transfer of long term capital asset being land or building or both
This section is applicable to all assessee who transferred any long term capital asset.
Conditions for availing exemption under this section:
- The asset should be long term capital assets.
- Such assets should be hold for more than 36 months
- The time limit for investment should be within 6 months from the date of transfer.
- The amount should be reinvested under Notified Bond redeemable after 5 years issued by:
- National Highway Authority Of India(NHAI)
- Rural Electrifications Corporations Ltd(RECL)
[Note: maximum exemption amount that can be claimed by assessee are 50lakhs]
- In case of transfer or conversion of such bonds or availing loan or advance on security of such bond before expiry of years, the capital gain exempted will be treated as Income
- The exemption amount should be minimum of the following:
- Investment in new Bonds
- Capital gain
Section 54EE: Transfer of any capital assets
This section is applicable to all assessee who transferred any capital assets on or after 1/04/16.
Conditions for availing exemption under this section:
- The asset should be long term capital assets.
- The amount should be reinvested under notified units of specified assets. Specified assets means a unit issued before 1/04/19, of such fund as may be specified by CG in this behalf.
- The time limit for investment should be within 6 months from the date of transfer.
- The new asset should not be sold for 3 years from the date of acquisition.
- The exemption amount should be minimum of the following:
- Investment in new assets
- Capital gain
[Note: maximum exemption amount that can be claimed by assessee are 50lakhs]
Section 54F: Transfer of any assets except residential house
This section is applicable to Individual/ HUF who transferred any capital assets other than residential house property.
Conditions for availing exemption under this section:
- The asset should be long term capital assets not being residential house
- Transfer of plot of land is also eligible for exemption
- The amount should be reinvested under residential house property situated in India.
- The time limit for investments in case of purchase within a period of 1 year before or 2 years after, from the date of transfer or in case of construction within a period of 3 years from the date of transfer.
- The new asset should not be sold within 3 years from the date of acquisition or construction otherwise it will be taxed as capital gain.
- On date of transfer of long term capital asset, the assessee should not own more than 1 residential house property other then new.
- The exemption amount will be
LTCG * Amount invested in new residential house/net considerations
