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Capital Gain Exemption

Capital gain exemption

(i) Capital Gains on sale of residential house [Section 54]

Eligible assessees – Individual & HUF

Conditions to be fulfilled

• There should be a transfer of residential house (buildings or lands appurtenant thereto)

• It must be a long-term capital asset

• Income from such house should be chargeable under the head “Income from house property”

capital gain exemption

• One residential house in India should be –

purchased within 1 year before or 2 years after the date of transfer (or) constructed within a period of 3 years after the date of transfer.

Quantum of Exemption

• If cost of new residential house ≥ Capital gains, entire capital gains is exempt.

• If cost of new residential house < Capital gains, capital gains to the extent of cost of new residential house is exempt.

Consequences of transfer of new asset before 3 years:

• If the new asset is transferred before 3 years from the date of its acquisition, then cost of the asset will be reduced by capital gains exempted earlier for computing short-term capital gains.

• Continuing Example 1, if the new house was sold after 2 years term capital gain chargeable to tax would be –

(ii) Capital Gains on transfer of agricultural land [Section 54B]

Eligible assessee – Individual & HUF

capital gain exemption

Conditions to be fulfilled

• There should be a transfer of urban agricultural land.

• Such land must have been used for agricultural purposes by the assessee, being an individual or his parent, or a HUF in the 2 immediately preceding years.

• He should purchase another agricultural land (urban or rural) within 2 years from the date of transfer.

Quantum of exemption

• If cost of new agricultural land ≥ Capital gains (short-term or long-term), entire capital gains is exempt.

• If cost of new agricultural land < Capital gains (short-term or long-term), capital gains to the extent of cost of new agricultural land is exempt.

capital gain exemption

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