Capital gains are the amount of net profits(gains) that the investor makes from selling of any capital assets over the purchase price of that assets. The entire consideration which an investors get over the property is considered as taxable income.

CONDITION TO BE FULFILLED FOR GETTING TAXED UNDER CAPITAL GAINS

To be eligible to get taxed under capital gains following criteria needs to be fulfilled

1. There should be a complete transfer of ownership of assets with some amount of consideration (except under inheritance or gift)

2. The transfer has taken place in previous fiscal year.

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TYPES OF CAPITAL GAINS

The capital gains have basically been categorized into two types

I. Long term capital gains: The profits earned by selling an asset that is in holdings for more than 36 months is Long term capital gains. However, if the following assets are held for 12 months or more it will be considered as LTCG.

  •  Equity or preference shares in a company are listed on a recognized stock exchange in India.
  • Securities (like debentures, bonds, government securities etc) listed on a recognized stock exchanges
  • Units of UTI
  • Units of equity oriented mutual funds
  • Zero Coupon bonds

II. Short term capital gains: If the assets are sold within 36 months of holding is known as short term capital gains. However, if the following assets are sold within a period less than 12 months it will be considered as STCG.

  • Equity or preference shares in a company are listed on a recognized stock exchange in India.
  • Securities (like debentures, bonds, government securities etc.) listed on a recognized stock exchanges
  • Units of UTI
  • Units of equity oriented mutual funds
  • Zero Coupon bonds

INDEXED COST OF ACQUISITION

The cost of acquisition is calculated on present terms by applying Cost Inflation Index. The indexed cost of acquisition can be estimated as the ratio of CII of years when an assets was sold by a seller with that of property acquired in year 2001 – 2002, which is later multiplied by cost of acquisition.

INDEXED COST OF IMPROVEMENTS

The Indexed cost of improvements is calculated by multiplying the associated cost of improvements by CII of the year of transfer divided by CII of year in which improvement has taken place.

EXEMPTIONS UNDER CAPITAL GAINS

Section 54: Under Section 54 of the Income Tax Act, an individual or HUF selling a residential property can avail tax exemptions from Capital Gains if the capital gains are invested in purchase or construction of residential property. The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long term capital gains does not exceed Rs. 2crores. If assesse exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year.

Section 54F: Under Section 54F   of the Income Tax Act, an individual or HUF selling a residential property can avail tax exemptions from Capital Gains if net consideration on sale of any asset other than house property is invested to buy new residential property in one year before the transfer date or within two years after the transfer date. The net consideration is re-invested in constructing 1 residential property in India in three years from the transfer date.

Section 54EC:  if the profit made on sale of a long-term capital asset – whether an immovable property or shares and stocks – is invested by the taxpayer in ‘long-term specified assets’ within 6 months of the sale, then the capital gains are exempt from taxation. However, you cannot invest more than Rs. 50 lakhs in these bonds in total.

The ‘long-term specified assets’ referred to here are government notified bonds and securities, such as those released by the National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC).

Author-Adv. Shivam Kumar

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Company: Taxblock
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Member Since: 24 Jun 2021 | Total Posts: 86
Taxblock, founded in 2019, is a fintech startup located in Pune, Maharashtra. We are enrolled as an E-Return Intermediary with Income Tax Department & have established an In-House team of Technology & Tax Experts to build a “Financial Compliance Ecosystem” for Individual & Corporate View Full Profile

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5 Comments

  1. Jaideep Sarma says:

    I purchased a land in 1996 for a consideration of Rs 150000. Later on in 2013 agrrement made with builder and builder built 14 flats . I was given two flats in one floor and two flats in another floor. The possession was given on December 2019. If I want to sale all four flates how the capital gain will be calculated. For further information I was paid 8 lakh in cash by builder as I developed the land and I paid Rs 7 lakh to builder for some extra area of one of flats out of four. Please advice capital gain calculation such case.

  2. VSR Murthy says:

    If part of a plot is sold and the benefit of sec 54EC is availed to the extent of 50 lacs by investing in NHAI BONDS & the balance part is sold in the next financial year (to the same party), can we again invest 50 lacs in NHAI BONDS and avail the benefit under sec 54EC

  3. Kirti Prakash says:

    I have sold a shop (commercial property) and I want to purchase a flat along with my son who will be taking loan from the bank and I shall be investing the whole proceed . Am I eligible for the exemption under 54F section of IT for this joint property?

    1. taxblock India Pvt.Ltd says:

      For availing tax exemption the investment must be made within 6 months of the date of sale of immovable property. Such investment can be redeemed only after 5 years. The maximum amount of exemption is available up to amount of Rs 50 lakh

    2. taxblock India Pvt.Ltd says:

      For availing of the tax exemption, the investment must be made within 6 months of the date of sale of the immovable property. Such investment can be redeemed only after 5 years. Before April 2018 the bonds could be redeemed within 3 years. The exemption on investment is allowed only against long-term capital gains on the sale of immovable property (i.e. sale of land or building). The exemption is available up to a maximum amount of Rs 50 lakh.
      In case of any query contact us at [email protected]

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