Did you know you can legally avoid paying hefty taxes on the profit you make from selling property, gold, or shares?
Under the Income Tax Act, if you reinvest your capital gains in a new residential house, you can claim major tax exemptions — effectively saving lakhs.
Let’s break down how this works and what you should keep in mind.
What Are Capital Gains?
When you sell a capital asset (like real estate, mutual funds, shares, or gold) at a profit, that profit is called capital gain.
Depending on how long you held the asset, it can be:
Short-term capital gain (STCG): Held for less than 2 years (for property).
Long-term capital gain (LTCG): Held for more than 2 years.
Only long-term capital gains are eligible for tax exemption through reinvestment in property.
The Legal Route: Section 54 and 54F
The Income Tax Act allows you to save or defer tax if you use your capital gains to buy or construct a new residential property.
Section 54:
Applies when you sell a residential property and reinvest in another.
You must buy the new house within 2 years (or construct within 3 years) from the sale date.
The new property must be in India.
Exemption = Tax on the capital gain amount reinvested.
Section 54F:
Applies when you sell any other capital asset (e.g., land, shares, gold) and buy a house.
To claim full exemption, you must invest the entire sale proceeds, not just the gain.
Example: How It Works
Suppose you sell a flat for ₹1 crore that you bought for ₹60 lakh.
Capital gain: ₹40 lakh.
If you invest ₹40 lakh (the gain) in another residential house within 2 years, you won’t pay tax on that gain.
If you invest only ₹20 lakh, you’ll get partial exemption, and tax will apply proportionately to the rest.
Timeline & Deposit Option
If you haven’t yet decided which property to buy, you can still save your exemption eligibility by depositing the amount in a Capital Gains Account Scheme (CGAS) before filing your return.
Then, use the deposited funds to purchase or construct the house within the permitted period.
Key Conditions to Remember
You can own only one residential property (other than the new one) at the time of claiming the exemption.
You cannot sell the new house within 3 years, or else the exemption will be reversed.
If you buy two houses, exemption can be claimed only once in a lifetime and only if capital gains are below ₹2 crore.
Expert Tip
If you are planning to upgrade your home or invest in property, timing your sale and purchase strategically can help you minimize tax liability.
Many financial planners recommend using these exemptions alongside home loan benefits (Section 24 and 80C) for maximum savings.
FAQs
1. Can I save tax on the sale of land or gold?
Yes, under Section 54F — if you reinvest the sale proceeds in a residential house.
2. What if I buy the house after 2 years?
You’ll lose the exemption benefit. The new house must be purchased within 2 years or constructed within 3.
3. Can I use the Capital Gains Account Scheme?
Yes, if you haven’t yet bought a house, you can deposit the gains in a CGAS account to retain eligibility.
4. Is this benefit available for NRI sellers?
Yes, NRIs can also claim exemption under Sections 54 and 54F, subject to conditions.
5. Can I sell the new property soon after buying it?
Not within 3 years — doing so will make the exemption taxable.
Published on : 30th October
Published by : SMITA
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