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Capital Gains

What are the exemptions from long term capital gains?

(a) Section 54: In case the asset transferred is a long term capital asset being a residential house, and if out of the capital gains, a new residential house is constructed within 3 years, or purchased 1 year before or 2 years after the date of transfer, then exemption on the LTCG is available on the amount of investment in the new asset to the extent of the capital gains. It may be noted that the amount of capital gains not appropriated towards purchase or construction may be deposited in the Capital Gains Account Scheme of a public sector bank before the due date of filing of Income Tax Return. This amount should subsequently be used for purchase or construction of a new house within 3 years.

(b) Section 54F: When the asset transferred is a long term capital asset other than a residential house, and if out of the consideration, investment in purchase or construction of a residential house is made within the specified time as in sec. 54, then exemption from the capital gains will be available as:

(i) If cost of new asset is greater than the net consideration received, the entire capital gain is exempt.

(ii) Otherwise, exemption = Capital Gains x Cost of new asset/Net consideration.

It may be noted that this exemption is not available, if on the date of transfer, the assessee owns any house other than the new asset. It may be noted that the Finance Act 2000 has provided that with effect from assessment year 2001-2002, the above exemption shall not be available if assessee owns more than one residential house, other than new asset, on the date of transfer. Investment in the Capital Gains Account Scheme may be made as in Sec.54.

(c) Section 54EA: If any long term capital asset is transferred before 1.4.2000 and out of the consideration, investment in specified bonds/debentures/shares is made within 6 months of the date of transfer, then exemption from capital gains is available as computed in Section 54F.

(d) Section 54EB: If any long term capital asset is transferred before 1.4.2000 and investment in specified assets is made within a period of 6 months from the date of transfer, then exemption from capital gains will be available as :-(i) If cost of new assets is not less than the Capital Gain, the entire Capital Gain is exempt.

Cost of New asset (ii) Otherwise exemption = Capital Gains x

Capital Gains

(e) Section 54EC: This section has been introduced from assessment year 2001-2002 onwards. It provides that if any long term capital asset is transferred and out of the consideration, investment in specified assets (any bond issued
by National Highway Authority of India or by Rural Electrification Corporation redeemable after 3 years), is made within 6 months from the date of transfer, then exemption would be available as computed in Sec. 54EB. The Finance Act, 2007 has laid an annual ceiling of Rs. 50 lakh on the investment made under this section w.e.f. 1.4.2007.

(f) Section 54ED: This section has been introduced from assessment year 2002-03 onwards. It provides that if a long term capital asset, being listed securities or units, is transferred and out of the consideration, investment in acquiring equity shares forming part of an eligible issue of capital is made within six months from the date of transfer, then exemption would be available as computed in Sec. 54EB. As per the Finance Act 2006 it has been provided that with effect from assessment year 2007-08, no exemption under this Section shall be available.

Source: Income Tax Department

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