Capital Gains Exemption

The sale of capital assets may lead to capital gains and these gains may attract tax under the Income Tax Act. To save tax on these capital gains, a few capital gains exemptions/deductions are available. Thus, one needs to plan benefits, considering all the relief available under the law.

The calculation of capital gains is done in the following manner:

The idea behind allowing deductions is that the number of capital gains as calculated above is invested in a new capital asset within a prescribed time period. The deduction is available in respect of such investment made into a new capital asset subject to certain conditions.

What are Short-Term Capital Gains?

The revenues obtained from the sale of an asset held for less than three years are referred to as short-term capital gains. The stated time for keeping the property in the case of immovable assets is 24 months.

Short-term capital gains are subject to a 15% capital gain tax under Section 80C of the Income Tax Act. When investors decide to sell an asset within a year, they are subject to this taxation.

What are Long-Term Capital Gains?

Long-term capital gains are the revenues gained from the sale of an asset held for more than 36 months.

Long-term capital gains are subject to a capital tax of 20% with indexation under Section 80C of the Income Tax Act, whereas gains of more than Rs.1 lakh are subject to a tax of 10% without indexation.

When kept for more than a year, assets such as equities, preferred shares, securities, equity-oriented mutual funds, UTI units, and zero-coupon bonds are considered long-term capital assets.

In this regard, we will look at the section-wise deductions available under the Act and the various conditions that need to be fulfilled to claim or be eligible for the same.

Questions like who can get such deductions, what amount of deductions, what assets need to be sold, what assets need to be purchased, and in how much time are answered below:

*CGAS stands for Capital Gains Accounts Scheme i.e., a type of account opened with a bank or specified institution that essentially acts as a means to park the capital gains until it can be used for its prescribed purpose.

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Frequently Asked Questions

I have sold my residential house property in May 2019 and realised long-term capital gains, what are the reinvestment options to get exemptions to form capital gain tax?

You, can reinvest in the purchase of new residential house property and claim an exemption under Section 54 at the time of filing a return provided all other conditions are satisfied.

In April 2020, I sold a long-term capital asset house property and the gain amount is less than 2 crores, can I reinvest in two house properties?

Yes, from AY 2021-22 you can invest in two house properties if your capital gain is less than 2 crores and claim exemption under section 54 provided all other conditions are satisfied. Please note that this option is available only once for the assessee, if you have taken this option once in an AY you will not be eligible for any of the AYs.

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