Section 54, 54EC, 54F: Capital Gain Tax Exemption in 2022
Capital Gains Exemption could be claimed underneath the Tax Act by reinvesting the quantity either in purchasing/ setting up a Residential House or by reinvesting the quantity in Capital Gain Bonds.
The vendor from the asset either has got the choice to claim exemption or pay 20% Lengthy Term Capital Gains Tax. (Refer: Computation of Lengthy Term Capital Gain Tax)
This short article explains at length the next exemptions which may be claimed around the purchase of the Lengthy Term Asset i.e. on purchase of the asset that was held in excess of 24 months.
- Section 54: Old Asset: House, New Asset: House
- Capital Gains Account Plan
- Section 54EC: Old Asset: Any Asset, New Asset: Specified Bonds
- Section 54F: Old Asset: Any Asset, New Asset: Residential House
- Detailed e-book on Levy of Capital Gains Tax and Exemptions with Examples
- Section 54: Old Asset: House, New Asset: House
Under Section 54 – Any Lengthy Term Capital Gain, arising for an Individual or HUF, in the Purchase of the House (whether Self-Occupied or on Rented) will be exempt towards the extent such capital gains is committed to the
Acquisition of another House within 12 months before or 24 months following the change in the home offered and/or
Construction of Residential house Property within a time period of three years in the date of transfer/purchase of property
So long as the brand new Residential House Property purchased or built isn’t transferred within a time period of three years in the date of acquisition. When the new rentals are offered within a time period of three years in the date of their acquisition, then, with regards to computing the main city gains about this transfer, the price of purchase of this house property will be reduced by the quantity of capital gain exempt under section 54 earlier. The main city gain as a result of this transfer will be a brief term capital gain.
- Quantum of Deduction under Section 54
- Capital Gains will be exempt towards the extent it’s committed to the acquisition and/or construction of some other house i.e.
- When the Capital Gains amount is equivalent to or under the price of the brand new house, then your entire capital gain will be exempt
- If the quantity of Capital Gain is more than the price of the brand new house, then the price of the brand new house will be permitted being an exemption
- No. of homes which may be purchased for claiming Section 54 Exemption
The Main City Gains Exemption is permitted only when the main city Gains exemption is committed to construction/acquisition of 1 residential house [Introduced vide Finance Act 2014]. Regardless of no. of homes already owned by the pack leader, if he invests the main city grow in construction/purchase of merely one residential house – then capital gains exemption could be claimed.
Being an exception towards the above rule, in instances where the quantity of Capital Gains doesn’t exceed Rs. 2 Crores, the main city gains exemption could be permitted whether or not the investment is created in purchase/construction of two residential houses. However, this exemption of buying 2 residential houses could be claimed just once. This exemption once claimed can’t be claimed in again in almost any other year. For those other years, investment ought to be produced in construction/ acquisition of 1 residential house only. [Introduced vide Finance Act 2019].
To re-iterate, for claiming exemption under Section 54 – no. of homes already owned by the pack leader is immaterial. He is able to still claim exemption by reinvesting the main city Gains on Purchase of House in another Residential House.
Capital Gains Account Plan
Although according to Section 54 of Income Tax Act the assessee is offered 24 months to buy the home property or three years for the making of the home property, however the capital gains around the change in the initial house rentals are taxed around that was offered. The Tax Return of this year is needed to become posted within the relevant assessment year on or prior to the specified deadline for filing the Tax Return. Hence, the assessee will need to have a decision for that purchase/construction of the home property up until the date of furnishing from the tax return otherwise, the main city gain would become taxed.
To prevent the above mentioned situation, the Tax Act specifies an alternate by means of deposit underneath the Capital Gains Account Plan.
The quantity of Capital Gain which isn’t utilised through the Assessee for that purchase or construction from the home prior to the date of furnishing from the Tax Return ought to be deposited by him underneath the Capital Gains Account Plan, prior to the deadline of furnishing the return. The facts of deposit i.e. the Date of Deposit and also the amount deposited are needed to become pointed out within the Tax Return while claiming the main city Gains Exemption. Within this situation, the quantity already utilised through the assessee for that purchase/construction from the home will be qualified for exemption.
In situation, the assessee deposits the quantity within the Capital Gains Account Plan but doesn’t utilise the quantity deposited for that purchase or construction of the residential house inside the specified period, the quantity not too utilised will be billed as Capital Gains of the season where the duration of three years is finished in the date of purchase from the Original Asset and it’ll be lengthy term capital gain of this financial year.
Allotment of Flats
Allotment of the flat by DDA underneath the Self-Financing Plan will be treated as construction of the home (Circular No. 471, dated 15-10-1986). Similarly, allotment of the flat or perhaps a house with a co-operative society, which the asseessee may be the member, can also be treated as construction of the home (Circular No. 672, dated 16-12-1983). Further in these instances, the assessee will be titled to assert exemption according of capital gains although the construction isn’t completed inside the statutory time period limit [Shashi Verma v CIT (1997) 224 ITR 106 (MP)].
Delhi High Court has applied exactly the same example in which the assessee made substantial payment inside the prescribed time period limit and therefore acquired substantial domain within the property, even though the builder unsuccessful to give the possession inside the stipulated period [CIT v R.L. Sood (2000) 108 Inland revenue 227 (Del)].
House Property does not necessarily mean an entire Independent House. It offers residential units also, like flats inside a multi-storeyed complex. [CIT (Addl.) v Vidya Prakash Talwar (1981) 132 ITR 661 (Del)].
In which a Property is a member of several people and yet another co-owner or co-proprietors release his or their share particular share or curiosity about the home towards among the co-proprietors, it will likely be considered the property continues to be purchased through the release. Such release also fulfils the health of Section 54 regarding purchase. [CIT v T.N. Aravinda Reddy (1979) 120 ITR 46 (SC)]
The unutilised deposit amount within the Capital Gains Account Saving Plan within the situation of someone who dies prior to the expiry from the 2/three years stipulated period under section 54, 54B, 54D, 54F and 54G, can’t be taxed at the disposal of the deceased. This amount isn’t taxed at the disposal of the legal heirs also because the unutilised area of the deposit doesn’t partake the type of earnings within their hands but is just an element of the estate. (Circular No. 743, dated 06-05-1996)
Section 54EC: Old Asset: Any Asset, New Asset: Specified Bonds
Gains as a result of the change in any lengthy term capital asset are exempt under section 54EC when the assessee has within a time period of 6 several weeks following the deadline of these transfer invested the main city grow in lengthy term specified bonds as notified through the Govt. for any minimum duration of three years.
In situation in which the lengthy term specified asset is transferred or changed into money anytime within a time period of three years in the date of their acquisition, the quantity of capital gain exempt u/s 54EC, will be considered to become lengthy term capital gain of the year before where the lengthy term specified asset is transferred or changed into money.
When the Assessee even requires a loan or advance around the security of these lengthy term specified asset, he will be considered to possess converted such lengthy term specified asset into cash on the date which such loan or advance is taken.
These specified binds are often from REC and NHAI and also the Rate Of Interest offered is approximately. 5.25%. Tax around the Interest earned can also be prone to be compensated because the Interest rates are not tax-free. They are Capital Gain Bonds and never Tax-Free Bonds. The Main invested becomes tax-free following the lock-in period however the interest remains as taxed.
Budget 2018 Amendment: With effect from Financial Year 2018-19, the advantage of Section 54EC would simply be on purchase of Land or Building (whether Residential or Non-Residential). Earlier it had been readily available for all assets however it might simply be relevant for Land or Building. Furthermore, from Financial Year 2018-19 onwards, these bonds could be needed to become held for minimum five years.
Quantum of Deduction under Section 54EC
Capital Gains will be exempt towards the extent it’s committed to the lengthy term specified assets (susceptible to an optimum limit of Rs. 50 Lakhs) within a time period of 6 Several weeks in the date of these transfer.
Budget 2014 has additionally introduced an amendment to Section 54EC and from FY 14-15 i.e. AY 15-16 onwards, an investment produced by an assessee within the lengthy term specified asset, from capital gains as a result of the change in a number of original asset or assets are transferred as well as in the following financial year doesn’t exceed Rs. 50 Lakhs.
You may even refer this short article which talks at length concerning the Capital Gains Bonds, their rates of interest along with other relevant provisions – Capital Gains Bonds of NHAI & REC.
Section 54F: Old Asset: Any Asset, New Asset: Residential House
Any Gain arising for an individual or HUF in the purchase associated with a Lengthy Term Asset apart from House will be exempt entirely, when the entire internet sales consideration is committed to
- Acquisition of one residential house within 12 months before or 24 months following the date of change in this kind of asset or perhaps in
- Construction of just one Residential House within three years following the date of these transfer
- In situation the entire purchase consideration isn’t invested and just an element of the purchase consideration is invested, exemption will be permitted proportionately i.e.
- Amount Exempt = Capital Gain X Amount Invested
- Internet Purchase Consideration
The above mentioned exemption wouldn’t be available if the below pointed out conditions is content:-
The assessee doesn’t own greater than 1 Residential House Property around the date of change in such asset without the main one he’s bought for claiming exemption under section 54F. (Note: The restriction on No. of homes already owned is just relevant when the assessee is claiming exemption under Section 54F. As described above, there’s no such restriction when the assessee is claiming exemption under Section 54)
The assessee purchases any residential house, apart from the brand new asset, within a time period of 12 months from the change in that old asset.
The assessee constructs any residential house, apart from the brand new asset, within a time period of three years following the date from the old asset.
Budget 2014 has additionally introduced an amendment to Section 54F to work from FY 2014-14 so that as per this amendment the exemption can be obtained when the investment is created in 1 residential house located in India.
Exemption under Section 54F wouldn’t be permitted if investment is created by 50 percent houses. The choice to purchase 2 houses can be obtained once in lifetime in Section 54 however is not obtainable in Section 54F.
The Assessee also offers a choice of depositing this amount in Capital Gains Account Plan as described in Section 54 above, prior to the deadline of furnishing the Tax Return.
e-Book on Capital Gain Tax on purchase of Property
Because the purchase cost of every property transaction is big, the tax relevant also happens to be huge. And for that reason, good care must be worked out while computing the main city Gains after which while using Exemptions to lessen the Tax Liability.
To help individuals compute the Tax Liability and also the Exemptions within the correct manner, we’ve authored an easy yet detailed e-book which is using more than 40 Examples, the way Capital Gains Tax could be levied on purchase of Property. All latest situation laws and regulations are also described within this e-book which may be purchased in here.
The e-book is updated with all of latest current amendments and also the primary topics covered within this e-book are:-
- Computation of Capital Gains
- Tax on Purchase of Inherited Property
- Tax on Purchase of Under-Construction Property
- Purchase of Property below Circle Rate/ Stamp Valuation Rate
- How you can reduce Tax by claiming Capital Gains Exemptions
- TDS on purchase of Property
- 40 Comprehensive Examples