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


    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.
Tax On Long-Term Capital Gains (LTCG)
Tax On Short-Term Capital Gains (STCG)
Exemption[ Section-54] For Capital Gains Arising On Transfer Of Residential House Property
EXEMPTION [Section-54B] To Capital Gains On Transfer Of Agricultural Land
Capital Gain Basis of Charge
Capital Gain- Rate of Taxes
Long & Short Term Capital Gain Tax
Exemption under Capital Gains
Capital Gains – How Computed
Short-Term / Long-Term Capital Gains-How Charged to Tax
Chart Showing the Computation of “Capital Gain”
Check List for Assessment- Capital Gains
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