No Income Tax upto 10 Crore Long Term Capital Gain Other then Residential house Property
No Income Tax upto 10 Crore Long Term Capital Gain Other then Residential house Property
-What is Section 54F of the Income Tax Act?
Section 54F of the Income Tax Act allows individuals to claim an exemption on long-term capital gains earned from selling long-term capital assets like jewelry, shares, and other capital assets except for house property if such sale proceeds are reinvested for the purpose of purchasing or constructing a house.
As per section 54F of the Income Tax Act,
Who can Claim Exemption Under Section 54F?
Section 54F of the Income Tax Act provides an opportunity for individuals and Hindu Undivided Families (HUF) to avail of exemption on capital gains by investing in a residential house.
Key conditions to qualify for exemptions under Section 54F include:
Applicable to both individuals and HUFs.
The capital gain results from the transfer of long-term capital assets other than a residential house.
The taxpayer should not own more than one house.
The residential house must be purchased within one year before the sale or two years after the sale of the capital asset. If constructing a house, completion must occur within three years from the sale. Otherwise, the exemption can be withdrawn.
The residential house cannot be sold within three years of purchase, or else the exemption will be revoked.
If any other house is purchased within one year from the sale of the capital asset or the construction of another house is completed within three years, the exemption will be withdrawn.
If the taxpayer fails to utilize the sale proceeds for buying or constructing the house before the due date for filing the Income Tax Return (ITR), the proceeds must be deposited in a 'Capital Gains Account' with a bank.
The proceeds from the sale of capital assets like gold, jewelry, and other capital assets are subject to tax in the hands of the taxpayer. However, if such sale proceeds are reinvested for the purchase or construction of a house property, then such gains can be claimed as an exemption under section 54F. However, there are certain conditions that must be fulfilled in order to claim this exemption.
How much Capital Gain Exemption is Available Under Section 54F?
Let's consider an example to illustrate the application of capital gains exemptions according to Section 54F.
For instance,
An investor sells capital assets valued at approximately Rs 50 lakh, resulting in capital gains of Rs 10 lakh. The investor decides to reinvest this amount towards the purchase or construction of a residential house.
Now, two scenarios can unfold:
Scenario 1: Reinvestment of the entire amount
If the investor reinvests the entire proceeds from the asset sale into the purchase or construction of a residential house, they can claim the full long-term capital gain exemption of Rs. 10 lakh.
Scenario 2: Partial reinvestment of sale proceeds
In cases where only a portion of the sale proceeds is reinvested in the construction or purchase of the residential property, only a proportionate amount of the long-term capital gains is exempted under Section 54F. The following formula can be used to determine the exempted amount:
Exemption under Section 54F
= (Amount Re-Invested / Net Consideration) * Long Term Capital Gain
Using the aforementioned example,
Assuming the investor reinvests Rs. 40 lakhs,
The capital gains exemption would be: (40 lakh/50 lakh) * 10 lakhs
Resulting in a capital gains exemption of Rs. 8 lakhs
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