Capital Gain Tax arises on the sale of a Capital Asset by the taxpayer. The Income Tax Act has laid down a list of exemptions under Capital Gains. These provisions allow a total or partial exemption from Capital Gain and minimise tax liability for individuals. However, the Capital Gains Tax Exemption amount can not exceed the total amount of Capital Gain. Following is a list of all capital gain exemption:
- Section 54 of the Income Tax Act
- Section 54F of the Income Tax Act
- Section 54EC of the Income Tax Act
- Section 54B of the Income Tax Act
- Section 54D of the Income Tax Act
- Section 54EE of the Income Tax Act
- Section 54G of the Income Tax Act
- Section 54GA of the Income Tax Act
- Section 54GB of the Income Tax Act
The individual can claim the capital gain exemption while filing ITR for the financial year. An individual taxpayer having income from capital gains should file ITR-2 on the income tax website on or before the due date of 31st July.
List of Capital Gain Exemption
The Income Tax Act has defined the particular sections under which exemptions can be claimed on capital gains earned. The intention of the exemption is to allow the taxpayer to invest in a new Capital Asset within a specified time limit without any tax burden. Here is a summary of the exemptions laid down by the Income Tax Department.
Income Tax Section | Description | Applicability | Deduction Amount |
54 | Sale of Residential House Property (LTCA) by Individual/HUF | Purchase or Construction of Residential House Property | Lower of Cost of New House Property OR Capital Gains |
Purchased 1 year before or 2 years after the sale of a property | |||
Constructed within 3 years from the sale of a property | |||
54F | Sale of Long Term Capital Asset (LTCA) other than house property by Individual/HUF | Purchase/Construction of New House Property | Cost of new asset * Capital Gains / Net Consideration |
Purchased 1 year before or 2 years after the sale of a property | |||
Constructed within 3 years from the sale of a property | |||
54EC | Sale of Land or Building or both (LTCA) by any taxpayer | Investment in NHAI/REC Bonds | Lower of Cost of Investment OR Capital Gains |
An investment made within 6 months from the sale of an asset | |||
The investment amount can not be more than Rs. 50 lakhs | |||
54B | Sale of Agricultural Land (LTCA/STCA) by Individual/HUF | Purchase of new Agricultural Land | Lower of Cost of New Agricultural Land OR Capital Gains |
Purchased within 2 years from the sale of land | |||
Land sold must be used for agriculture purposes for 2 years prior to sale | |||
54D | Compulsory acquisition of land and building (LTCA) used in an industrial undertaking | Purchase of land or building for shifting or re-establishing the industrial undertaking | Lower of Cost of New Asset OR Capital Gains |
Purchase within 3 years from the date of receipt of compensation | |||
Land/Building acquired must be used for industrial undertaking purposes for 2 years prior to transfer | |||
54E, 54EA, 54EB | Sale of any LTCA by any taxpayer | Investment in Specified Securities | Cost of new asset * Capital Gains / Net Consideration |
Specified securities include Government Securities, Savings Certificates, Units of UTI, Specified Debentures, etc | |||
An investment made within 6 months from the sale of an asset | |||
54EE | Sale of any LTCA by any taxpayer | Investment in units of a notified fund to finance startups | Lower of Cost of Investment OR Capital Gains |
The investment amount can not be more than Rs. 50 lakhs | |||
An investment made within 6 months from the sale of an asset | |||
54G | Sale of plant, machinery, land, building to shift industrial undertaking from urban area to rural area | Purchase of new plant, machinery, land, building to shift industrial undertaking to rural area | Lower of Cost of New Asset OR Capital Gains |
Purchased within 1 year before and 3 years after the sale of assets | |||
The asset sold can be LTCA or STCA | |||
54GA | Sale of plant, machinery, land, building to shift industrial undertaking from urban area to rural area | Purchase of new plant, machinery, land, building to shift industrial undertaking to SEZ | Lower of Cost of New Asset OR Capital Gains |
Purchased within 1 year before and 3 years after the sale of assets | |||
The asset sold can be LTCA or STCA | |||
54GB | Sale of residential house property or residential plot of land (LTCA) by individual or HUF | Subscription in equity shares of eligible company or startup | Cost of new asset * Capital Gains / Net Consideration |
Eligible company or startup should utilize the amount of subscription for purchase of new assets |
CGAS Scheme i.e. Capital Gains Account Scheme is an option for the taxpayers to temporarily park their funds before making an investment in the specified assets as per the relevant section to claim the capital gain exemption. The taxpayer who has income from capital gains and wants to reduce the capital gains tax by making a specified investment has an option to create a CGAS account. If such taxpayer is unable to utilise the sale consideration for buying the new asset before the due date of filing ITR, he/she must create a CGAS account and deposit the funds there to claim the capital gain exemption. The benefit of CGAS Scheme is available for Section 54, Section 54B, Section 54D, Section 54EE, Section 54F, Section 54G, Section 54GA, Section 54GB of Income Tax Act.
FAQs
Taxpayer can claim exemption u/s 54, 54F depending on asset sold. An exemption can be claimed by putting the amount in Capital Gains Account Scheme (CGAS) before the due date of filing of ITR in the year of sale. And claim the same as exemption while filing ITR.
The taxpayer can claim exemption u/s 54B and 54G on Short Term Capital Asset. However, all the other exemptions are available on Lond Term Capital Asset.
While filing ITR, taxpayer only needs to enter the exemption section, required details of purchased asset and amount of exemption claimed. However, it is important to keep the purchased assets documents on record for future use.