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 minimize 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 exemptions:
- Section 54: Capital Gains Exemption on Sale of House Property
- Section 54F: Capital Gain Exemption on sale of LTCA except house property
- Section 54EC: Capital Gains Exemption on Sale of Land or Building
- Section 54B: Capital Gains Exemption on Sale of Agricultural Land
- Section 54D: Capital Gains Exemption on Compulsory Acquisition
- Section 54EE: Capital Gains Exemption on Investment in units of Specified Fund
- Section 54G: Capital Gains Exemption on Shifting of Industrial Undertaking from Urban Areas to Non-Urban Areas
- Section 54GA: Capital Gain Exemption on transfer of assets in case of shifting of Industrial Undertaking from an urban area to any Special Economic Zone (SEZ)
- Section 54GB: Capital Gain Exemption on sale of residential property
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.
Hey @TanyaChopra
To claim Capital Gains Exemption under Section 54EC, you need to file ITR-2.
Read more about Section 54EC here
Details are as follow:
My queries/confusion:
Cost Inflation Index FY based on possession date (not booking date) as entry date and sale transferred (not biana date) as exit date, right?
Since it is a jointly held, I did not pay anything to acquire the commercial plot but father did. Now when we sell, 50% will be to each account, what would be my LTCG?
Please correct me if I’m missing something for my LTCG (>24 mo.):
(+) Sale Consideration: Rs. 25L (half of 50L overall joint)
(-) Transfer Expenses: Rs. 0 (constructed via cash not eligible, right?)
(-) Indexed Cost of Acquisition: 16.5L * 317/289 = 18.1L
(-) Indexed Cost of Improvement: ?? (what exactly is this?)
Long-Term Capital Gain: 6.9L
If possession date and sale date is 24+ months , can I save LTCG tax by just investing Rs. 6.9L in IRFC/NHAI/PFC/IRFC bond under Section 54EC?
If yes, can I keep 18.1L in my bank account or invest in FD / MF? Any further suggestion?
@Sakshi_Shah1 can you help ?
Hey @learner
Indexed Cost of Acquisition is calculated as Cost of Acquisition * CII for Sale Year/ CII for Purchase Year. In your case, CII for Sale Year would be CII of the year in which you sold property. CII for Purchase Year would be CII of the year in which you got the possession of property.
If you have not contributed towards the purchase consideration, you will not be treated as a co-owner for income tax purpose. Thus, the entire LTCG would be taxed in the ITR of your father as Sale Value - Transfer Expenses - Indexed Cost of Acquisition
Cost of Improvement is a capital expenditure incurred by an assessee for making improvement in the property. It can be claimed as a deduction for computing capital gains. Indexed Cost of Improvement is calculated as Cost of Improvement * CII of year of sale / CII of year of improvement
If the period of holding is more than 24 months, income is treated as LTCG. You can claim exemption under Section 54EC if you fulfill all the conditions as per the Section. Read more about it here
Thanks a lot @Sakshi_Shah1 for the detailed answer and @Amulya_Garg for ensuring my queries addressed.
I do have a follow-up queries.
Since the tax is under hand of my father as he only purchased the commercial plot, can I enjoy 50% of sale proceeds that is credited to my bank account without any tax? “Enjoy” in my term refer to Multi-Option-Deposit (Bank) with quarterly payout.
My father has purchased another commercial plot, do you have any relevant article that explains how tax can be saved by utilizing the sale proceeds to buy another commercial plot (before or after)?
Hello @learner
Ideally, since your father is the owner of the property, the sale proceeds should be credited to his bank account. If the money has already been credited to your account, there are chances that the Assessing Officer i.e. AO might question the source of funds and a justification why they are not reported as income in the ITR.
Capital Gains on sale of commercial plot can be exempt if the taxpayer invests in any of the following assets:
The registration of commercial property comes under both father and my name (co-owners), which is how sale proceeds is credited to each of us, however, all the payments for purchase of property were done by father only. And my father will report the whole capital gains in his account.
Will this below stands true in my ITR if I do not report?
And thanks for 2nd point.
@Sakshi_Shah1 can you help?
Hey @learner
Your father should report the capital gains in his ITR. You need not report the same in your ITR. However, you must hold relevant proofs of the capital gains taxed in your father’s ITR in case the AO questions source of funds in your account.
The income tax department introduced a new Section 54EE of Income Tax Act with effect from 1st April 2017. Section 54EE provides for exemption from Capital Gains Tax on the sale of any long-term capital asset by investing into units of specified funds.
A taxpayer can claim an exemption u/s 54EE if they fulfill all the below conditions:
You can read more about Section 54EE here.
Got questions? Shoot’em here.