Capital Gain Exemption u/s 54, 54F & 54EC
Capital Gain Exemption u/s 54, 54F & 54EC
- What are the conditions to get the exemption under section 54 for long term capital gain?
- How exemption under section 54 is computed for long term capital gain?
- What is exemption u/s 54F in capital gain?
- What is Section 54EC in capital Gain?
Exemption u/s 54 is a taxation benefit available to an Individual or HUF when he sells a residential house property and reinvests the same into another house property.
Following are the pre-requisites of exemptions under section 54 (All the requirements are cumulative hence we need to ensure that all the points should met):
- Exemption u/s 54 is available only to the individual or HUF. So the property owner should be either individual or HUF.
- Property should be a residential house property. And income of such property was coming under income from house property.
- There should be a long-term capital gain i.e. the house property should be owned by more than 24 months by the owner.
- The amount of capital gain should be reinvested into a residential property in India.
- The new property should be acquired either 1 year before or 2 year after the transfer of original asset.
- In case of construction the post-acquisition period of 2 years is extended to 3 years.
- In case of compulsory acquisition, the period of post-acquisition of 2 / 3 years would be taken from the date of receipt of compensation.
- The reinvestment should be in 1 new property. From budget 2019, we can reinvest in 2 house properties provided long term capital gain on sale of original residential property should not exceed 2 crore.
- The newly acquired residential property should not be sold before 3 years from its acquisition/ completion of construction.
Exemption Under Section 54 is not available if we are not able to met any of above conditions.
Exemption u/s 54 from long term capital gain is based on reinvestment of long-term capital gain amount not the sale proceeds. So to get the exemption we need to reinvest the amount to the extent of long term capital gain.
Exemption u/s 54 is lower of the following:
- Long term capital gain on sale of Residential property
- Amount reinvested in new property
The taxable amount after exemption is calculated as below: -
Long term capital gain on sale of residential property XXXX
Less:- Amount reinvested into new house property XXX
Balance amount taxable as long term capital gain XX
Exemption u/s 54F of Capital Gain is on sale of any property other than a residential house property, following are the provisions of section 54F:-
- This exemption is available only to individual and HUF
- The property sold should be property other than the residential house property.
- There should be a long term capital gain on sale of that asset.
- At the time of transfer of this asset, assessee should not own more than 1 property.
- The sale proceeds should be reinvested into a residential house property.
- We can reinvest in only 1 house property.
- The exemption is based on proportion of reinvested out of sale proceeds, so if we invest 60% of sale proceeds, our 60% of capital gain will exempt & remaining would be taxable.
- The reinvestment should be done either 1 year before or 2 year after the sale of asset or in case of construction uto 3 years after the sale.
- If assessee reinvests more than sale proceeds, the entire capital gain would be exempted.
- This exemption will be taken back if we sell the newly acquired house with 3 years of its purchase or construction.
- Also this exemption will be taken back if we purchase another house within 2 years of the sale or construct a house within 3 years of sale of original asset.
- In case of reversal in any of above 2 situations, the capital gain in the year of reversal will be taxable as long term capital gain.
Section 54EC of Income Tax Act deals with reinvestment of long term capital gain into specified bonds. Following are the provisions applicable to Section 54 EC:-
- Any Person can avail this exemption
- There should be a long term capital gain on sale of land or building or both.
- Bonds should be purchased within 6 months of transfer.
- Maximum amount in bonds can be invested is Rs. 50 Lacs.
- The investment in bonds can also be made with balance gain left after reinvesting under Section 54 or 54F.
- The exemption of capital gain would be based on reinvestment of long term capital gain on original asset. For example if we have gain of 80 lacs as long term capital gain on sale of a land & we purchase bonds u/s 54EC for Rs. 50 lcas then the balance 30 lacs would be taxable as long term capital gain.
- These bonds are lock in for 5 years.
- Time being Govt. has notified the following Bonds for investment u/s 54EC (All are redeemable after 5 years)
- National Highways Authority of India
- Rural Electrification Corporation Limited
- Power Finance Corporation Limited
- Indian Railway Finance Corporation Limite