Capital Gain Tax Exemption in 2022 Section 54, 54EC, 54F
Capital gains exemption can be claimed under the Income Tax Act by reinvesting the amount in the purchase/construction of a residential house or by reinvesting the amount in capital gains bonds.
The seller of the property has the option to either claim the exemption or pay 20% long-term capital gains tax.
This article elaborates on the following exemptions that can be claimed on the sale of a long-term asset, i.e. on the sale of an asset that was held for more than 2 years.
1. Section 54: Old Property: Residential Property, New Property: Residential Property
2. Capital Gains Account Scheme
3. Section 54EC: Old asset: Any asset, New asset: Specified bond
4. Section 54F: Old property: Any property, New property: Residential house
Section 54: Old Property: Residential Property, New Property: Residential Property
Under section 54: Residential property
any long-term capital gain arising to an individual or HUF from the sale of residential property (whether self-occupied or let out) shall be exempt to the extent such capital gain is invested.
1. Purchase of another residential property within 1 year before or 2 years from the date of transfer of the property sold and/or
2. Construction of residential house property within a period of 3 years from the date of transfer/sale of property
Provided that the new residential house property purchased or constructed is not transferred within a period of 3 years from the date of acquisition. If the new property is sold within a period of 3 years from the date of acquisition, then for the purpose of computing capital gain on this transfer, the cost of acquisition of this house property will be reduced by the amount of capital gain. Exemption under section 54 earlier. The capital gain from this transfer will always be a short-term capital gain.
Quantum of deduction under section 54
Capital gains will be exempted to the extent it is invested in the purchase and/or construction of another house, ie.
1. If the capital gain amount is equal to or less than the cost of the new house, then the entire capital gain will be deductible
2. If the amount of capital gain exceeds the cost of the new house, the cost of the new house will be allowed as a discount
Number of houses that can be purchased to claim section 54 exemption
1. Capital Gains Exemption is allowed only if Capital Gains Exemption is invested in the construction/purchase of 1 residential house [Introduced under Finance Act 2014]. regardless of no. With a number of houses already owned by the individual, capital gains exemption can be claimed if he invests capital gains in the construction/purchase of a residential house.
2. As an exception to the above rule, in cases where the amount of capital gain does not exceed Rs. 2 crores, capital gains exemption will be allowed even if the investment is made in the purchase/construction of 2 residential houses. However, this exemption for buying 2 residential houses can be claimed only once. This exemption once claimed cannot be claimed again in any other year. Investment should be made in the construction/purchase of only 1 residential house for all other years. [Introduced by the Finance Act 2019].
To iterate again for claiming exemption under section 54 — No. Houses already owned by the individual have no significance. He can still claim exemption by reinvesting the capital gains on the sale of the house in another residential house.
capital gains account scheme
Though as per section 54, the assessee is given 2 years for the purchase of house property or 3 years for construction of house property, capital gain on transfer of original house property is taxable in the year in which it is sold. went. The income tax return for that year is required to be furnished in the relevant assessment year on or before the due date specified for filing the income tax return. Therefore, the assessee has to make the decision for purchase/construction of house property by the date of furnishing of Income Tax Return otherwise, the capital gain will become taxable.
To avoid the above situation, the Income Tax Act specifies an option in the form of deposits under the Capital Gains Account Scheme.
The number of capital gains which is not utilized by the assessee for the purchase or construction of a new house before the date of furnishing of income tax return should be credited before the due date of deposit under Capital Gains Account Scheme. Return. The details of deposit i.e. date of deposit and amount deposited are required to be mentioned in the income tax return while claiming capital gains exemption. In this case, the amount already utilized by the assessee for the purchase/construction of the new house will be eligible for exemption.
If the assessee deposits the amount in the Capital Gains Account Scheme but does not utilize the amount deposited for the purchase or construction of a residential house within the specified period, the amount so unutilized shall be treated as a capital gain of the year. will be charged in Which completes a period of 3 years from the date of sale of the original asset and it will be the long-term capital gain of that financial year.
Allotment of a flat by the DDA under the Self-Financing Scheme will be treated as construction of a house (Circular №471, dated 15–10–1986). Similarly, the allotment of a flat or a house by a co-operative society, of which the assessee is a member, is also treated as construction of a house (Circular №672, dated 16–12–1983). Further, in these cases, the assessee will be entitled to claim the exemption in respect of capital gains even if the construction is not completed within the statutory time limit [Shashi Verma v. CIT (1997) 224 ITR 106 (MP)].
The Delhi High Court has applied the same analogy where the assessee made sufficient payment within the stipulated time frame and thereby acquired sufficient domain on the property, though the builder failed to hand over the possession within the prescribed period [CIT Vs RL Sood (2000) ) 108 Taxman 227 (Delhi)].
Section 54EC: Old asset: Any asset, New asset: Specified bond
Gain arising out of transfer of any long-term capital asset is exempt under section 54EC if the assessee has invested capital gains in specified bonds of long duration notified by the Government within a period of 6 months after the due date of such transfer has been done. For a minimum period of 3 years.
In a case where the specified long-term asset is transferred or converted into money at any time within a period of 3 years from the date of its acquisition, exemption of capital gains under section 54EC shall be deemed to be the long-term capital gain of the previous year. Wherein specified assets of long duration are transferred or converted into money.
If the assessee also takes a loan or advance on the security of the specified asset of such a long period, he shall be deemed to have converted the specified asset of such a long period into money on the date on which such loan or advance was taken Was.
These specified binds are usually issued by REC and NHAI and the interest rate offered is approx. 5.25%. Interest earned is also liable to be paid tax as interest is not tax-free. These are capital gains bonds and not tax-free bonds. After the lock-in period, the principal invested becomes tax-free but the interest remains taxable.
Budget 2018 Amendment: From the financial year 2018–19, the benefit of section 54EC will be available only on sale of land or building (whether residential or non-residential). Earlier it was available for all properties but now it will be applicable only for land or building. Further, from the financial year 2018–19, these bonds will be required to be held for a minimum period of 5 years.
Quantum of deduction under section 54EC
1. Capital gains shall be exempted to the extent invested in specified assets of long duration (subject to a maximum limit of Rs 50 lakh) within a period of 6 months from the date of such transfer.
2. Budget 2014 has also introduced an amendment in section 54EC and from the financial year, 14–15 i.e. from 15–16 onwards, capital gains arising from the transfer of one or more of the specified assets by an assessee The investment made is the original asset or assets transferred and in the subsequent financial year does not exceed Rs. 50 lakhs.
You can also go through this article which talks in detail about Capital Gain Bonds, their interest rates, and other applicable provisions — Capital Gain Bonds of NHAI and REC.
Section 54F: Old property: Any property, New property: Residential house
Any profit accruing to an individual or HUF from the sale of any long-term asset other than residential property shall be fully exempted if the entire net sale consideration is invested
1. Purchase of a residential house before 1 year or within 2 years from the date of transfer of such property
2. Construction of 1 residential building within 3 years from the date of such transfer
If the entire sale consideration is not invested and only a part of the sales consideration is invested, the discount will be allowed proportionately ie.
Amount Discounted = Capital Gains X Amount Investednet sales ideas
Exemption under section 54F is not available in the following cases
The above exemption will not be available if any of the conditions given below are satisfied:-
1. The assessee has not more than 1 residential house property on the date of transfer of such property excluding the property purchased for claiming exemption under section 54F. (Note: The restriction on the number of houses already owned is applicable only if the assessee is claiming exemption under section 54F. As explained above, there is no such restriction if the assessee is claiming exemption under section 54 is claiming)
2. The assessee buys any residential house, other than the new property, within a period of 1 year from the date of transfer of the old property.
3. The assessee constructs any residential house, other than the new property, within a period of 3 years after the date of the old asset.
Budget 2014 has also introduced an amendment in section 54F which will be effective from FY 2014–14 and as per this amendment exemption is available if an investment is made in 1 residential house located in India.
If an investment is made in 2 houses then exemption under section 54F will not be allowed. The option to invest in 2 houses is available under section 54 once in a lifetime but not available in section 54F.
The assessee also has the option to deposit this amount in the Capital Gains Account Scheme, as explained in section 54 above, before the due date of furnishing of Income Tax Return.
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