Exemptions under Long Term Capital Gains:
The exemptions on long term capital gains are:
Profit on sale of residential house (Section 54):
If the house is sold for residential accommodation, if it is self-occupied or rented out, you can avail full exemption, provided:
- The assessee must be an individual or Hindu Undivided Family.
- The assessee has held the house for more than 3 years.
- The assessee has purchased a new house one year prior to the sale or two years after the sale of original house or if he is constructing a new house within a period of 3 years after the sale of original house.
- If the amount is deposited in a bank under the Capital Gains 1988 account scheme.
- If the cost of the new house is equal to or more than the capital gain earned.
- If the cost of the new house is less than the capital gain, then the difference amount is taxed at 20%.
- If the new house is sold within 3 years from the date of purchase or construction, then the cost of the new house is deducted by the amount of capital gain exempted on the original house and the difference in the sale price of the new house will be treated as a short term capital gain.
If the capital gain is invested in long term specified assets of NHAI or Rural Electrification Corporation (Section 54EC):
It is subject to the following:
- The profit earned is from the sale of a long-term capital asset.
- The assessee must invest a part of the capital gain or the whole of the gain in specified assets like bonds of NHAI or REC that have a 3 year lock-in period, 6 months from the date of sale of the original asset.
- The investment made should not be less than the capital gain. If a part of the gain is invested, then the proportionate amount will be exempted while the balance amount will be taxable.
- Assessee must retain the new asset for a minimum of 3 years.
Profits from the sale of an asset other than a residential house is used to buy a residential house (Section 54F):
This is subject to the following conditions:
- The assessee must be an individual or a Hindu Undivided Family.
- The capital gain should be from a sale of an asset that is not a residential house.
- The assessee has bought a new house one year before the sale of the asset or two years from the sale. He can also construct a house within 3 years from the sale of the original asset.
- The cost of the new house must not be less than the value of the asset sold. If a part of the capital gain is invested, then only that part will be exempt, the balance amount will be taxable.
- If the full amount is not invested to either buy a house or construct it, then it should be kept in the bank under Capital Gains Scheme 1988 account. The amount in that account should be utilised for constructing a house or to buy a new house.
- On the date the assessee is selling the original capital asset, he must not own more than one residential house apart from the new house. He must also not buy another house in 2 years or construct a new house from 3 years of buying or constructing the new house.