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Few tips to save yourself from capital gain tax this financial year legally
A person has various sources of income and every tax payer wants to pay minimum tax and for that one has to have a knowledge of how to save tax and has to plan properly. Generally, humans have a tendency to procrastinate and due to that they start planning in the nick of time and end up making the wrong decision. One has to take decision at the right time to reap the benefit before it is too late.
Many of us enter into transaction of sale of capital asset and in case we don’t know about the tax provision we end up paying tax which actually could have been avoided using the sections of income tax act.
Certain ways through which the capital gain can be exempted for tax are:
Buy a residential house property after selling a residential house property.
As per section 54 if an individually or Hindu undivided family has a long term capital gain on sale of a residential house property, and if it is utilized for buying a residential house property in India then the LTCG will be exempt to the extent of amount deposited to capital gain A/C scheme or the cost of asset .
Time limit – new house property should be purchased within one year before the date of the transfer or second year after the date of the transfer or should be can be constructed within three years after the date of the transfer.
Capital gain A/C scheme – Assessee should acquire house property or deposit amount in capital gain account before due date of return filing. deposited amount should be utilized for the purpose of residential house property only, if mis-utilized or underutilized the exemption claim earlier shall be withdrawn.
The new house property has a lock in period of 3 years from the date of acquisition.
Exemption for urban agricultural land under section 54B
Under section 54b if an individual or Hindu undivided family sales urban agricultural land which has been used by the assessee or his parents for agricultural purpose for 2 years before the date of the transfer then this capital gain can be exempted if the assessee purchases an urban or rural agricultural land within two years of date of transfer. The capital gain will be exempt to the extent of amount deposited to capital gain A/C scheme or the cost of asset.
The lock in period and capital gain A/C scheme condition is same as section 54.
Exemption for immovable property under section 54EC
If an assessee sells an immovable property and has a long-term capital gain, then the assessee can get it is exempted by acquiring the specified bonds within six months after the date of transfer. The specified bonds are of
- national highway authority of India
- electrification corporation limited
- power finance corporation limited
- Indian railway finance corporation limited
Under this section the assessee can claim maximum deduction of 50 lakh for the bonds acquired during 6-month time.
Assessee cannot transfer bonds or cannot converted into money within 5 years from the date of acquisition of the bonds if converted then the exemption claimed earlier will be withdrawn and treated as Long term capital gain in the year in which the transfer has taken place
Exemption for any long-term capital asset
As per section 54 CF, if an individual or Hindu undivided family has a long-term capital gain except on the sale of residential house property then the long-term capital gain can be exempted if the individual acquires residential house property in India.
There is a condition to avail exemption that one should not own more than 1 house property on the date of transfer and he should not purchase any other house property within prescribed time limit. The new house property has a lock in period of 3 years.
If the assessee utilizes whole net consideration for house property then whole capital gain will be exempt otherwise
Exempt amount = LTCG ×
Exemption for compulsory acquisition of industrial land and building
As per section 54EC, If Assessee has lost his industrial land and building due to compulsory acquisition by the government then the gain on such an acquisition can be exempted if the individual purchases a new industrial land or building within three years after the date of receipt of the compensation.
The new industrial land and building has a lock-in period of 3 years and the amount of examination will be limited to the cost of the new land and building or the amount deposited in CGAS account.
[ Ku. Archita Nathani is in CA (Final) & undergoing her article-ship at SSRPN & CO. She can be reached at email@example.com ]