The buying and selling of assets, particularly properties, often result in capital gains tax liabilities
Capital gains are categorized as either STCG or LTCG based on the holding period of the property, with different tax implications for each
Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG)
STCG occurs when a property is held for less than 24 months, and tax is levied based on the individual's tax slab
Taxation on STCG
LTCG, arising from the sale of a property held for more than 24 months, is subject to a 20% tax. However, individuals can avail exemptions under Section 54 of the Income Tax Act by reinvesting the capital gains in another house or plot
Taxation on LTCG and Section 54 Exemption
To claim exemption under Section 54, the new property must be purchased within two years or constructed within three years of selling the old property
Conditions for Section 54 Exemption
If an exemption is claimed under Section 54, the new property is subject to a three-year lock-in period. Selling the property within three years results in the withdrawal of the tax exemption benefit
Lock-in Period for New Property
Exemption under Section 54EC can be availed by investing the capital gains in specified bonds, such as those offered by REC, PFC, and IRFC. These bonds have a lock-in period of five years.
Section 54EC Exemption
Section 54EC Exemption
If the bonds under Section 54EC are withdrawn for cash conversion within five years, the capital gains subject to exemption become taxable
Tax Implications for Early Withdrawal of Bonds
Tax Implications for Early Withdrawal of Bonds
Allows individuals who cannot make immediate investments to deposit the proceeds of the property sale in designated accounts. The deposited amount can be used for investing in another residential property or eligible company shares.
Capital Gains Account Scheme (CGAS)
Capital Gains Account Scheme (CGAS)
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