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Capital Gain Tax Exemption, Govt Capital Gain Scheme

Posted By: Admin
October 13, 2022 |

Know Capital Gain Tax Exemptions Sections, Deductible Expenses from Capital Gain Tax

Capital Gain Tax Exemption: You must have read our article on about Capital Gain Tax & Rates in India, Capital Assets, Rules. Now in this article we will discuss about what are the expenses which we can deduct while calculating the capital gain tax. We will see sections which define Capital Gain Tax Exemption in detail.

What is Capital Gain Tax Exemption?

In terms of taxation, exemptions are those expenses which we can deduct from taxable amount for the purpose of capital gain tax calculation. These expenses may wholly and directly relate to the sale or transfer of the capital asset. Generally, government categorize expenses which are necessary for the transfer to take place in capital gain tax exemption category. You should keep in mind that it is not permitted to include these expenses under any other head of income. Also, you can claim these expenses only once.

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What are the Deductible Expenses from capital gain tax calculation?

There are several expenses which you can deduct from proceed of sale of capital assets. We have listed these expenses here below –

Deductible expenses while Sale of house property:

These expenses are deductible from the total sale price:

You can deduct Brokerage or commission paid to identify purchaser of your property
Cost of stamp papers can also be deducted while capital gain tax payment
A person can deduct Travelling expenses incurred even after the transfer has been affected in connection with the transfer
Expenditure related to procedures associated with the will and inheritance, obtaining succession certificate, costs of the executor,

Deductible expenses while Sale of shares:

There are some expenses which you can consider for deduction while capital gain tax calculation. One of which is brokerage or broker’s commission incurred. However, securities transaction tax (STT) is not allowed as a deductible expense

Deductible expenses while sale of Jewellery:

While sale of jewellery you can deduct broker’s services fee to identify a buyer of your jewellery.

Capital Gain Tax Exemption Section and capital gain tax rules

Now when we know about expenses which can be deducted from capital gain, it is important to know the capital gain tax rule and capital gain tax section. You can see all the details below in this article. The Section 54 and subsections of Section 54 define exemption on Sale of Property on Purchase of Another Property

Capital Gain Tax Exemption under Section 54:

The section 54 specifically provides relief to taxpayers from long-term capital gain tax from the sale of house property if the person invests in buying or constructing up to two another house properties against the provision of one house property. However, this does not mean that you need to invest full sale amount of property. Only Capital gain amount is to be invested. There is a restriction on capital gain amount which is the capital gain on the sale of house property must be below Rs 2 crores. This exemption is allowed only once in the lifetime of a taxpayer. Also, If you purchase a property which is costlier that the amount of capital gains, the exemption shall be limited to the total capital gain on sale.

Section 54 rules:

You can claim capital tax deduction when you purchase a property either 1 year before the sale or 2 years after the sale of the property. If you are
If you invest the capital gain amount in the construction of a property, in that case the construction must be completed within three years from the date of sale.
Also, the government will take the exemption back if within 3 years of purchase/completion of construction you sell the property which you have purchased from capital gain amount and claim for capital gain tax relief.

Also read Everything about Agriculture Loans in India and Government schemes

Capital Gain Tax exemption under Section 54F

Section 54F defines the exemption on capital gains on sale of a long-term asset other than a house property. To avail this capital gain tax relief, you must invest the entire sale consideration and not only capital gain to buy a new residential house property.

Section 54F rules:

You can purchase the new property either one year before the sale or 2 years after the sale of the property or in the construction of a property. However, the construction must complete within 3 years from the date of sale.

Capital Gain Tax exemption under Section 54EC

The section 54EC defines exemption on sale of house property while reinvesting it in specific bonds. To avail this capital gain tax exemption, you can invest in National Highway Authority of India Bonds (NHAI Bonds) or Rural Electrification Corporation Bonds (REC Bonds) for up to Rs. 50 lakhs.

Section 54EC rules:

You can redeem the money which you have invested after 5 years
The person should invest the capital gain amount within six months’ time in these bonds.
To claim this exemption, you must invest the capital gain amount before the tax filing deadline.

Capital Gain Tax exemption under Section 54B

Section 54B defines the exemption on capital gains from transfer of land used for agricultural purpose. You can claim Short-term capital gain or Long-term capital gains Tax relief from when you transfer land used for agricultural purposes for 2 years before the sale. The capital gain amount need reinvestment into a new agricultural land within 2 years from the date of transfer.

Section 54B rules:

You cannot sell the new agricultural land within a period of 3 years, which is purchased to claim capital gains exemption.
In case you do not purchase agricultural land before income tax return deadline, the capital gain amount must be deposited before the date of filing of return.
You can claim the exemption for the amount deposited.

Also read Everything about Agriculture Loans in India and Government schemes

What is Capital Gains Account Scheme?

On sale of an asset, generally property there are few alternatives where you can invest the capital gain amount. Main alternative is to invest your capital gain amount in buying another property. Finding a new property to purchase very time consuming also not an easy task. The procedure of buying and selling not so easy that everyone can handle the pressure. The property sale purchase documentation is also another problem which is a headache to people.

The government of India has provided solution to this problem. The government has launched Capital Gains Account Scheme which is an easier capital gain amount investment alternative.

According to Capital Gains Account Scheme, if capital gains are not invested until the due date of filing of return of the financial year in which the property is sold, the gains can be deposited in a PSU bank or other banks as per the Capital Gains Account Scheme, 1988.

You can claim capital gain tax relief on this deposit as an exemption from capital gains.

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