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Income Tax Exemptions On Long Term Capital Gain Under Section 54 Of Income Tax Act 1961

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When you sale or transfer any of your Capital asset then you get some money and that money can make loss or gain in your Capital Asset which is known as Capital gain or Capital Loss. It is the fourth head in your Income.

Capital Asset Is Of 2 Types :-

  • Short Term :- Any Asset which is held by assesse for not more than 36 Months is known as Short Term Capital gain (In case of Shares its less than 12 months),
  • Long Term :- Any Asset which is held by assesse for more than 36 month is known as Long Term Capital Gain (in case of Shares its more than 12 month)

ALSO READ :- Tax Implications On Capital Gains – Short Term & Long Term Capital Gain

Tax Exemptions On Long Term Capital Gain

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When you make capital gain by the transfer of asset then you need to pay Tax on the income you make from it, but there are some exemptions are allowed for you which are result of fulfillment of certain conditions, Lets Take a look on all of them :-

Capital Gains Arising From Transfer Of Property Used As Residence [Sec 54]

If you make any gain from the transfer of following assets then its will be exempted from tax and it wont be included in your taxable income, but you must fulfill following conditions :-

  • Building owned by HUF or Individual,
  • That property must be used for residential purpose,
  • If you made any income from that property it should be charged under Income From House And Property,
  • Exemption is only allowed for house property which is used by assesse for more than 36 months before transfer,
  • If you had purchased an house property before one year
  • You had purchased an house property within 2 year from the date of transfer
  • You had created a house within 3 years from the date transfer,

Quantum Of Tax Exemptions On Long Term Capital Gain:-

  • Exemption limit is allowed to the value of New house purchased or constructed,
  • If assesse transfer the new house purchased within the period of 3 years,

Capital Gain From Transfer Of Agricultural land [Sec 54B]

If you generate capital gain from the transfer for an Agricultural Land in Urban area is exempt if you fulfill following conditions :-

  • The land must be owned by Individual,
  • The land must be used by assesse or his parent for agricultural purpose immediately 2 years preceding the date of transfer
  • Assess must has purchased another Agricultural land within 2 year from the date of transfer,

Quantum Of Tax Exemptions On Long Term Capital Gain:-

  • Exemption Limit is only allowed for the amount of new land purchased,
  • If new land is not purchased with the due period then unutilized amount should be deposited in Capital Gain Account Scheme 1988 and then you will be entitled for exemption,

ALSO READ :- How To Use Capital Gain Account Scheme (CGAS) To Save Tax In India?

If you sell new land purchased within 3 years of its purchase then exemption will not be allowed to you and it will be treated as Short-Term capital gain.

Capital Gain On Compulsory Acquisition Of Land Or Building [Sec 54D]

Many times Government acquired your land or some another law made it compulsory acquisition then exemption is allowed if following conditions are fulfilled :-

  • The land or building must be used by assesse for industrial undertaking,
  • The land must be used for industrial purpose for at least 2 years immediately preceding the date of transfer,
  • The assesse should have purchased or constructed any other building for the shifting  industrial undertaking
  • The assesse should have purchased or constructed any other building for the setting up another industrial undertaking

Quantum Of Tax Exemptions On Long Term Capital Gain:-

  • If amount received as capital gain from the transfer of asset is less or equal to the new land purchased or constructed then whole amount is exempted or if amount construction exceed the capital gain then exceed amount will be taxed.
  • If the amount received from Capital gain is not fully utilized by assesse for the purchase or construction of new land then it should be deposited in Capital Gain Account Scheme to entitled for exemption.

If new land purchased or building constructed is sold within 3 years then exemption is not allowed and it will be treated as Short Term Capital Gain.

Exemption From tax On Long Term Capital Gains On Investment Of The Consideration In Residential House [Sec 54F]

Long term capital gain under this section is exempted if following conditions are fulfilled :-

  • Assesse must be an Individual or HUF,
  • The asset transferred is not a residential house,
  • The assess must not own more than 1 residential house on the date of transfer,
  • The assesse should have purchased a new residential property either before 1 year from the date of transfer or after 2 years of transfer.
  • Assesse should have constructed a new residential property within 3 years of transfer.

Quantum Of Tax Exemptions On Long Term Capital Gain:-

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  • If the cost of new house purchased is less or equal then whole amount is exempted or if new house purchased cost more than exceed amount is taxed.
  • If the amount received from Capital gain is not fully utilized by assesse for the purchase or construction of new land then it should be deposited in Capital Gain Account Scheme to entitled for exemption.

If newly purchased or constructed house is transferred within 3 years then exemption is lifted and it will be treated as Short Term Capital Gain.

Capital Gain On Transfer Of Assets in Case Of Shifting Of Industrial Undertaking From Urban Area [Sec 54G]

If you transfer an industrial undertaking from urban to non-urban area the exemption is allowed if you fulfill following conditions :-

  • You must transfer long term or short term capital asset like Plant, Machinery, Building, or Land,
  • Those assets should have been used for business of industrial undertaking in urban area,
  • The asset should have been transferred in connection with the shifting of of undertaking to non-urban area.
  • The amount should be utilized one year before or 3 years after the date of transfer for purchase or construction or machine, building for business purpose in shifting area,
  • New purchased or constructed asset should be used by assesse for at least 3 years from the date of acquisition.

Quantum Of Tax Exemptions On Long Term Capital Gain:-

  • The amount received from such transfer should be utilized for the shifting of business unit only,
  • If amount is not utilized then it should be deposited in Capital Gain Account Scheme (CGAS) to entitled for exemption.

If new asset is transferred within 3 years of being purchased then exemption is lifted and it will be treated as Short Term Capital Gain (STCG).

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