The Income Tax Act has laid out exemptions under Section 54 and Section 54F to help taxpayers save tax on capital gains.
(1)Exemption under Section 54 is available on long-term Capital Gain on sale of a House Property.
(2)Exemption under Section 54F is available on long-term Capital Gain on sale of any asset other than a House Property.
To reiterate, both the exemptions are available only on long-term capital gains.
|Section 54||Section 54F|
|To claim full exemption the entire capital gains have to be invested.||To claim full exemption the entire sale receipts have to be invested.|
|In case entire capital gains are not invested - the amount not invested is charged to tax as long-term capital gains.||
In case entire sale receipts are not invested, the exemption is allowed proportionately.
[Exemption = Cost the new house x Capital Gains/Sale Receipts]
| ||You should not own more than one residential house at the time of sale of the original asset.|
|This exemption will be reversed if you sell this new property within 3 years of purchase and capital gains from sale of the new property will be taxed as short-term capital gains.||This exemption will be reversed if you sell this new property within 3 years of its purchase or construction OR if you purchase another residential house within 2 years of the sale of the original asset or construct a residential house other than the new house within 3 years of sale of the original asset. Capital gains from the sale will be taxed as long-term capital gains.|