Capital Gain is one of the important source of incomeunder the income tax law. Capital gains are the profits that you earn when you sell a piece of property or an investment for a higher price than you paid for it. With most publicly traded investments, such as shares of stock, mutual funds, or exchange-traded funds, it's pretty easy to determine whether you'll have a capital gain upon their sale. If the price has gone up since you bought your shares, you'll have a capital gain, and if the price has gone down, you'll have a capital loss.
Income would be taxable under this head only if following conditions are satisfied:
- There should be a capital asset.
- There should be transfer of such capital asset.
Types of capital asset
- Short term capital asset
- Long term capital asset
|ASSET TYPES||SHORT TERM(if sold)||LONG TERM(if sold)|
Units of UTI/MF
Zero Coupon Bonds
|Within 12 months||More than 12 months|
|Within 24 months||More than 24 months|
|Other Assets||Within 36 months||More than 36 months|
Exemption under Section 54
When an individual sells a residential property and buys another residential property, he will be eligible for exemption under Section 54. Conditions to avail the benefit of exemption under Section 54 include:
- The taxpayer (i.e. seller) needs to be an individual or HUF. Thus, firms, LLP’s and companies cannot utilize the benefits of this section.
- Asset needs to be classified as a long-term capital asset.
- The asset sold is a Residential House. Income from such a house should be chargeable as Income from House Property
- The seller should purchase a residential house either 1 year before the date of sale/transfer or 2 years after the date of sale/transfer. In case the seller is constructing a house, the seller has an extended time, ie. the seller will have to construct the residential house within 3 years from the date of sale/transfer. In case of compulsory acquisition, the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional compensation)
- The new residential house should be in India. The seller cannot buy or purchase a residential house abroad and claim the exemption.
The above conditions are cumulative. Hence, even if one condition is not fulfilled, then the seller cannot avail the benefit of the exemption under Section 54.
What if the assessee has sold his house and is unable to purchase a new house and still want to claim exemption?
In this case the assessee can transfer the amount to Capital Gain Saving Account. In such cases, taxpayer is given an option of depositing such unutilised capital gains in ‘Capital Gains Account’ introduced under Capital Gains Account Scheme. Any capital gain invested in Capital gains account scheme will be eligible for capital gain exemption as it would in case of re-investment.
A capital gains savings account is similar to the regular savings account in any bank. The applicable interest rate is also the same as that given on regular saving schemes. You will receive a passbook that has records of all transactions – deposits, interest received, withdrawals – made in the account.
Who can deposit in Capital Gains Account Scheme?
Category of taxpayer having capital gains who is eligible to invest in CGAS from Section 54 to 54F of the Income-tax Act, 1961 “Act”, is provided below:
|Section Number||Capital gains made on||Category of person|
|54||Sale of residential house||Individual or HUF|
|54B||Sale of land used for agricultural purpose||Individual or HUF|
|54D||Compulsory acquisition of land and building||Any taxpayer|
|54E||Sale of any long term capital asset||Any taxpayer|
|54EC||Sale of long term capital asset being land or building or both||Any taxpayer|
|54F||Sale of any long term capital asset not being residential property||Individual or HUF|
|54G||Transfer of asset (machinery, plant or building, land or right in land or building) in case of shifting of industrial undertaking from urban area||Any taxpayer|
|54GA||Transfer of asset (machinery, plant or building, land or right in land or building) in case of shifting of industrial undertaking from urban area to Special Economic Zone||Any taxpayer|
|54GB||Transfer of residential property||Any taxpayer|