Income tax exemption on LTCG
Income Tax from Long Term Capital Gains (LTCG) is exempted under Section 54 of the Income Tax Act in case a taxpayer sells his residential house and acquires another residential house from the sale proceeds.
What is Long Term Capital Gains?
Capital gains or profits obtained when selling a capital asset will be treated Long Term Capital Gains when the period of holding that asset, in between the date of its buying and its selling, is more than 2 years.
Tax exemption in LTCG is given in case where the seller of property who obtained capital gains, invests the amount in buying a residential building within 2 years, or constructing a residential building in 3 years, from the date of sale of his assets.
The definition of capital asset under section 2(14) of the Income Tax Act includes property of any kind movable or immovable, tangible or intangible held by the assessee for any purpose.
Sale of house property
The exemption under Section 54 is available when the capital gains from the sale of house property are reinvested into buying or constructing two another house properties, since the year 2019. The exemption on two house properties will be allowed once in the lifetime of a taxpayer, provided the capital gains do not exceed Rs. 2 crores.
The new property can be purchased either 1 year before the sale or 2 years after the sale of the property. The gains can also be invested in the construction of a property, but construction must be completed within three years from the date of sale.
The exemption can be taken back if this new property is sold within 3 years of its purchase/completion of construction.
The capital gains tax exemption limit under Section 54 to 54F is restricted to Rs.10 crore.
Deposit the Gains in Deposit Scheme when filing IT Returns
In case a person is unable to invest the entire portion of the LTCG before his filing of income tax returns in the next financial year, he must deposit the proceeds from the property into a Capital Gains Deposits Scheme, 1988 of the Government of India.
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