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Exemptions Under Capital Gains

4.4.      EXEMPTIONS UNDER CAPITAL GAINS

There are certain Exemptions in respect of Long-Term Capital Gains. A few are given below :

I.    Profit on Sale of Residential House (Sec.54) :

Capital Gain earned by selling a Residential House whether self-occupied or let-out, is fully exempted subject to the following :

  1. The Assessee should be an Individual or H.U.F.

  2. The House is held for more than 3 years means long term Capital Assets.

  3. The Assessee has :

    1. Purchased a new house one year before the sale / two years after the sale of original house

    OR

    1. Constructed a new house or has purchased a site and constructed a house thereon, Within a period of 3 years after the sale of the original house,
  1. If the amount of Capital Gain is not utilized for the above purpose, before the due date of filling Annual Returns, it should be deposited in a Bank under Capital Gains 1988 Account Scheme.

  2. Cost of new house is equal or more than the Capital Gain earned.

Note :

  1. If Capital Gain is more than the cost of new house, the difference amount is chargeable to tax at 20% as Long-Term Capital Gain of the Previous Year in which the original house was sold.

  2. If the new house is sold within 3 years from the date of purchase or construction, the cost of the new house minus the amount of Capital Gain exempted earlier on the original house and the balance will be treated as “Short Term Capital Gains” and charged to tax during the year of new house was sold.

II    Profit on sale of any Long-Term Capital asset is exempted if the Profit / Capital Gain is invested in Long Term Specified Assets of NHAI  or Rural Electrification Corporation ( Sec. 54EC) Subject to the following :

  1. The Profit / Capital Gain earned / accrued from the sale of a Long-Term Capital Asset.

  2. within 6 months from the date of sale of original Asset, the Assessee Invests the whole or part of the Capital Gain in the Specified Assets, ( i.e. Bonds of NHAI or REC with a lock-in period of 3 years)

  3. The investment made is not less than the Capital Gain. If a part of the gain is invested, amount proportionate to the investment only will be exempted and balance is taxable.

  4. The Assessee has to retain the newly invested Specified Asset for a minimum period of 3 years.

III. Profit on sale of any  Capital asset (other than a residential house) is exempt from ax, if the investment is made on a Residential House, subject to the following  ( Sec. 54F) :

  1. The Assessee is an Individual / HUF.

  2. The Capital Gain is by sale of Long-Term Capital Asset (other than residential house)

  3. The Assessee has purchased a new house one year before the sale of the Capital Asset or two years after the sale of the Capital Asset or construct a house or purchase a site within 3 years from the date of sale of the Capital Asset.

  4. The entire sale value excluding cost of transfer of original Capital Asset sold should be invested in acquiring a new house..  If only a part is invested, amount invested only will be exempt. The balance is taxable.

  5. The full amount of sale should be deposited in a Bank under Capital Gains Scheme 1988 A/c. if such sale  value is not utilized for the above purpose before the due date for filling of Returns u/s 139(1), it

  6. On the date of sale of the original Capital Asset, the assessee...

    1. Does not own more than one residential house other than new house.

    2. Does not purchase within 2 years, or construct within 3 years any other residential house  from the date of purchase / construction of the new house.

Related Topics....Under the head 'Capital Gain'

Capital Assets, Capital Gain & Transfer of Capital Assets for Taxation of 'Capital Gain'
Types of Capital Assets for Computing ‘Capital Gain’
Computation Of ‘Period Of Holding of an Asset' for Computing Gapital Gain [Explanation 1(i) to Section 2(42A)]
Transfer Of A Capital Asset [Section 2(47)] for Computing Capital Gain
Transactions Not regarded as ‘Transfer’ for Computing Capital Gain [Section 46 and 47]
Method of Computing Capital Gain [Section 48]
Deemed Cost of Acquisition of Asset for Computing Capital Gain
[Section 55(2)] : Cost of Acquisiton of Assets for Computation of Capital Gain
Capital Gains Accounts Scheme, 1988.
Types of Capital Gain
Tax on Long-Term Capital Gain in certain Cases (Section 112A)
Exemption of Capital Gains under Section 10 and 115JG

Exemption of Capital Gains under Sections 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GB anf 54H

(Section 54) : Exemption of Capital Gains from the Transfer of Residential House Property
(Section 54B) : Exemption of Capital Gain on Transfer of Land used for Agricultural Purposes
(Section 54D) : Exemption of Capital Gains on Compulsory Acquisition Of Land And Buildings forming part of Industrial Undertaking
(Section-54EC) : Exemption of Capital Gain on Transfer of any Long Term Capital Asset on the basis of Investment in certain Bonds
(Section 54EE) : Capital Gain not to be charged on Investment in Units of a Specified Fund
[Section 54F] : Exemption of Capital Gain on Transfer Of Long-Term Capital Assets other than a House Property
[Section 54G] : Capital Gain on Shifting of Industrial Undertaking from Urban Areas to Non-Urban Areas :
[Section 54GA] : Exemption of Capital Gain on transfer of assets in case of shifting of Industrial Undertaking from an urban area to any Special Economic Zone (SEZ)
(Section 54GB) : Exemption of Long term Capital Gain Tax on Transfer of Residential Property if Net Consideration is Invested in the Equity Shares of a new Start-up SME Company :
(Section 54H) : Extension of time limit for acquiring new Asset or Depositing or Investing amount of Capital Gain, in case of Compulsory Acquisition :

Capital Gain in various Special Cases - How to Find Out or Calculate

  1. Capital Gain from Zero Coupon Bonds

  2. Capital Gain in case of amount Received from an Insurer on account of Damage or Destruction of any Capital Asset [Section 45(1A)]:

  3. Capital Gain in the case of Transfer of Depreciable Assets [Section 50] -

  4. Capital Gain on Conversion of Capital Asset into Stock-in-Trade [Section 45(2)]-

  5. Capital Gain on Transfer of Capital Asset by a Partner/Memeber to a Firm/AOP/BOI as Capital contribution [Section 45(3)]-

  6. Capital Gain on Distribution of Capital Assets by a Firm, AOP/BOI to Partners at the time of Dissolution [Section 45(4)]-

  7. Capital Gain on Compulsory Acquisition of a Capital Asset [Section 45(5)]-

  8. Computation of Capital Gains in case of Joint Development Agreement [Section 45(5A)] [W.e.f. A.Y. 2018-19]

  9. Capital Gain on Conversion of Debentures / Bonds into Shares [Section 47(x), 49(2A) and rule 8AA] :

  10. Capital Gain on Transfer of Shares / Debentures in the hands of Non-Residents (Proviso 1 to Section 48 and Rule 115A) :

  11. Capital Gain on Transfer of Self-Generated Capital Assets :

  12. Capital Gain on Transfer of Bonus Shares -

  13. Capital Gain on Transfer of Right Entitlement -

  14. Capital Gain on Transfer of Securities in Demat Form -

  15. Capital Gains on Distribution of Assets by Companies in Liquidation [Section 46]:

  16. Computation of Capital Gains in the case of Transfer of Land and Building or in Real Estate Transactions [Section 50C] -

  17. Capital Gains on Purchase by Company of its Own Shares or Other Specified Securities [Section 46A]:

  18. Capital Gain on Sale of Land and Building to be computed separately in case of Building Constructed by the Assessee:

 
 
 
 
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