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INCOME TAX

CAPITAL GAINS INCOME

CAPITAL GAINS EXEMPTION

Capital Gains Exemption

Updated on :  Jan 13, 2022 - 09:39:10 AM
• 19 min read.

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 exemption/deductions are available. Thus, one needs to plan benefits, considering all the relief
available under law.

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

The idea behind allowing deductions is that the amount 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.

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:

Section Asset sold Applicability

Assessee Individual / HUF

Type of
asset Residential House Property
transferred

Type of
LTCG
transfer

Two residential
houses can
New asset One Residential House From AY 2021-22 If CG is purchased and this
purchased lessthen or equal to 2 crores option is available
only once for an
assessee.

Time Limit
Profit on sale of property used for for Purchase - Within 1 year before or 2 years after
54
residence investment transfer Construction - Within 3 years from
in new transfer
asset

Exemption Long-Term Capital GainORCost of new asset

Amount whichever lesser
CGAS*
Yes - deposit by return filing due date
available

1. If new asset is sold within 3 years, amount

earlier exempted under this section will be
reduced from its COA to calculate capital gains
Additional
thereon

Conditions
2. If the amount in CGAS is not utilized within the
prescribed time limit, such unutilized amount will
be taxable as capital gains

54B Capital gain on transfer of land used for Assessee Individual / HUF
agricultural purposes Type of Land used for agricultural purposes by the
asset individual / his parent / HUF as the case may be
 transferred for 2 years prior to transfer

Type of
LTCG
transfer

New asset
Agricultural land
purchased
Time Limit
for
investment Within 2 years from the date of transfer
in new
asset
Exemption Long-Term Capital GainORCost of new asset
Amount (land)whichever lesser

CGAS*
Yes - deposit by return filing due date
available

1. If new asset is sold within 3 years, amount

earlier exempted under this section will be
reduced from its COA to calculate capital gains
Additional
thereon

Conditions
2. If the amount in CGAS is not utilized within the
prescribed time limit, such unutilized amount will
be taxable as capital gains

Assessee Any assessee

Type of Land or building forming part of an industrial

asset undertaking used for the same in the past 2 years
transferred prior to transfer
Type of
LTCG
transfer

New asset Land or building for shifting or re-establishing the

purchased industrial undertaking

Time Limit
for
investment Within 3 years from the date of transfer
Compulsory acquisition of land and in new
54D
building used in an industrial undertaking asset

Exemption Long Term Capital GainORCost of new asset

Amount (land/building)whichever lesser

CGAS*
Yes - deposit by return filing due date
available
1. If new asset is sold within 3 years, amount
earlier exempted under this section will be
reduced from its COA to calculate capital gains
Additional
thereon

Conditions
2. If the amount in CGAS is not utilized within the
prescribed time limit, such unutilized amount will
be taxable as capital gains
54E, Investment in specified securities Assessee Any assessee
54EA, Type of
54EB, asset Long-term capital asset
transferred

Type of
LTCG
transfer

New asset Specified securities - includes government

 purchased securities, savings certificates, units of UTI,
specified debentures, etc.

Time Limit
for
investment Within 6 months from the date of transfer
in new
asset

Exemption Cost of new asset x Capital Gain / Net

Amount consideration (maximum up to the capital gain)
CGAS*
No
available

1. If new asset is sold within 3 years, amount

earlier exempted under this section will be
reduced from its COA to calculate capital gains
Additional
thereon

Conditions
2. If a loan is taken on the security of the new
specified asset within 3 years, the same will be
treated as capital gains

Assessee Any assessee

Type of
asset Land or building or both
transferred
Type of
LTCG
transfer

New asset NHAI bonds or REC bonds, redeemable after 5

purchased years

Time Limit
for
investment Within 6 months from the date of transfer
in new
asset
54EC Investment in certain bonds Exemption Cost of new asset x Capital Gain / Net
Amount consideration (maximum up to capital gain)

CGAS*
No
available

1. If new asset is sold within 5 years (3 years before

F.Y. 2018-19), amount earlier exempted under this
section will be reduced from its COA to calculate
capital gains thereon

Additional 2. If a loan is taken on the security of the new

Conditions specified asset within 3/5 years, the same will be
treated as capital gains

3. Investment in specified bonds should not

exceed Rs. 50 lakhs during the current and
succeeding fiscal year

54EE Investment in units of a specified fund Assessee Any assessee

Type of
asset Long-term capital asset
transferred

Type of
LTCG
transfer

New asset Units notified by Central Government

 purchased

Time Limit
for
investment Within 6 months from transfer
in new
asset

Exemption Cost of new asset x Capital Gain / Net

Amount consideration (maximum up to capital gain)

CGAS*
No
available

1. If new asset is sold within 3 years, amount

earlier exempted under this section will be
reduced from its COA to calculate capital gains
thereon

Additional 2. If a loan is taken on the security of the new

Conditions specified asset within 3 years, the same will be
treated as capital gains

3. Investment in specified units should not exceed

Rs. 50 lakhs during the current and succeeding
fiscal year

Assessee Individual / HUF

Type of
Any long-term capital asset other than residential
asset
house
transferred
Type of
LTCG
transfer

New asset
Residential house property
purchased

Time Limit
for Purchase - Within 1 year before or 2 years after
investment transfer Construction - Within 3 years from
in new transfer
asset

Exemption Cost of new asset x Capital Gain / Net

54F Investment in residential house Amount consideration (maximum up to capital gain)

CGAS*
Yes - deposit by return filing due date
available

1. If new asset is sold within 3 years, amount

earlier exempted under this section will be
reduced from its COA to calculate capital gains
thereon

2. If the amount in CGAS is not utilized within the

Additional prescribed time limit, such unutilized amount will
Conditions be taxable as capital gains

3. The Individual/HUF cannot own more than 2

house properties (i.e., existing House property and
new house property). If another house property is
purchased, amount of exemption allowed earlier
will be chargeable as capital gains

54G, 54G: Shifting of industrial undertaking from

Assessee Any assessee
54GA urban area to rural area.

54GA: Shifting of industrial undertaking Type of Capital asset being plant, machinery, land,
 from urban area to SEZ asset building or rights in land or building that is used in
transferred an industrial undertaking situated in an urban
area

Type of
STCG / LTCG
transfer

Shifting of industrial undertaking involving:

1. Purchase of new plant/machinery

New asset 2. Acquisition of land or construction of a building

purchased 3. Shifted old asset and transferred undertaking

to a new area

4. Incurred specified expenses

Time Limit
for
1 year before and 3 years after the date of
investment
transfer
in new
asset

Exemption Long-Term Capital GainORCost of new asset

Amount whichever lesser

CGAS*
Yes - deposit by return filing due date
available

1. If new asset is sold within 3 years, amount

earlier exempted under this section will be
reduced from its COA to calculate capital gains
Additional
thereon

Conditions
2. If the amount in CGAS is not utilized within the
prescribed time limit, such unutilized amount will
be taxable as capital gains

54GB Transfer of residential property by the Assessee Individual / HUF

eligible assessee (Applicable only if Type of
transfer made before 31.03.2017. In case asset Residential property (house or a plot of land)
investment is made in an eligible startup, transferred
transfer to be made before 31.03.2019) Type of
LTCG
transfer

Equity shares in an eligible company:

1.  Newly incorporated

2.  Engaged in the business of manufacture or

New asset
eligible business

purchased
3.  Assessee has >50% share / voting rights

4. Small or Medium enterprise under MSMEA, 2006

or is an eligible startup

Time Limit
for
investment By return filing due date
in new
asset

Exemption Long-Term Capital GainORCost of new asset

Amount whichever lesser
CGAS* Available to the eligible company - by return filing
available due date

Additional 1. If new asset is sold within 5 years, amount

Conditions earlier exempted under this section will be
reduced from its COA to calculate capital gains
 thereon.

2. Eligible company to utilize subscription money

for the purchase of new plant and machinery
subject to certain conditions within 1 year. If not,
such unutilized amount shall be chargeable to
tax as capital gains.

3. If the amount in CGAS is not utilized by the

eligible within the prescribed time limit, such
unutilized amount will be taxable as capital gains

*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.

Note:

HUF – Hindu Undivided Family

REC – Rural Electrification Corporation

LTCG – Long-term capital gain

STCG – Short-term capital gain

COA – Cost of Acquisition

SEZ – Special Economic Zone
NHAI – National Highway Authority of India

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 form capital gain tax ?

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

In the April 2020 I sold a long term capital asset being 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 assessee, if you have
taken this option once in a AY you will not be eligible for any of the AY’s

Related Articles

Capital Gains Tax India – Definition ,Types, Exemptions & Tax saving

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