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How to save tax on Long Term Capital Gain from sale of Property.




1. Save Long Term Capital Gain tax through Investment in new property

Tax payers can use exemption user section 54 and 54F of Income Tax Act to save tax on Long term capital gain.

Section 54 of Income tax Act has provision to get tax exemption on long term capital from sale of house property

Section 54F of Income Tax Act has provision to avail tax exemption on long term capital gain from sale of any property other than house property.


Conditions to avail tax exemption

S No. Condition
1. Purchase of New Residential property or construction is to be done
2. New residential property must be purchased before 1 year of sale of property or 2 years after the sale of property or asset
3. In case of construction of new residential property, the construction should be completed within 3 years
4. If the seller is not able to invest the amount as described above before the due date of filing income tax return or 1 year from the date of sale of property, whichever is earlier, the amount should be deposited with a public sector bank or other bank as per the capital gains account scheme, 1988
5. As per the latest amended law the seller can purchase or construct only one property
6. From Financial Year 2014-15 onwards it is mandatory that the new residential property must be situated in India. The exemption shall not be available for the properties build or constructed outside India.


Conditions to claim exemption under 54 and 54F of Income tax Act

Section 54 Section 54F
Entire capital gain amount have to be invested to get exemption To claim full exemption the full sale proceeds have to be invested
If the capital gain amount is not invested the un invested amount is treated as long term capital gain In case of entire sale receipt amount are not invested, the exemption is allowed proportionately. (Exemption = cost of new house X capital gains/sale receipts)
  The person should not own more than one house at the time of sale of the original asset
If the new property is sold within 3 years of purchase exemption will be reversed and capital gain from sale of new property will be taxed as short term capital gain. This exemption will be reversed if the assessee sell this new property within 3 years of its purchase or construction OR if the assesee 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.


Other Points for saving long term capital gain tax

If the cost of new property is less than the total sale amount, the exemption is allowed proportionately. The remaining amount can be invested as per section 54EC within 6 months.

The property must be purchased in the name of the seller, not in the name of any other person.

If the construction of new property is being done by a builder and the builder is not able to handover the possession of the property within 3 years of purchase, the exemption is still allowed.


2. Set off Long term capital gain against long term capital loss or short term capital loss

If there is a short term capital loss, it can be set off against the capital gain on transfer of any other asset, whether it is short term or long term, in the same year. Loss from transfer of long term capital asset can be set off against gain from transfer of any other long term capital asset in the same year.


Filing of Income Tax Return in case of capital loss

If there is capital gain loss in any particular year, the income tax return should be filed before due date to avail the facility to carry forward the loss.



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