Taxpayers can avail of long-term capital gains exemption under Section 54F, if they sell any type of capital asset (other than a residential house) like shares, a plot of land, commercial assets, commercial house property, jewellery, and so on, and reinvest the gains for the purchase of a residential house property. This capital gains exemption can be availed by taxpayers only if the assessee does not own any residential house as on the date of the transfer of the capital asset.
The entire net sale proceeds from the sale of a capital asset must be invested within:
- One year of the transfer in advance.
- Within two years from the date of transfer in the purchase of a residential house property.
- Sale proceeds may be invested within three years in the case of construction of a residential house property.
Capital Gains Exemption for Agricultural Land
Long-term and short-term capital gains are exempt for agricultural land which was being used by the assessee or a parent of his for agricultural purposes, for two years immediately preceding the date of transfer. However, the assessee should, within a period of two years after that date, have purchased any other land for being used for agricultural purposes.
Capital Gains Exemption for Investment in Private Limited Company
As per the Finance Act, 2012 the tax on long-term capital gains on transfer of a residential house will be exempted if invested in shares of a private limited company and used for the purchase of plant and machinery.
Capital Gains Exemption for Business Assets
Under Section 54D of the Income Tax Act, capital gains exemption can be claimed by persons owning an industrial undertaking on the transfer of land or building used for the purposes of business. Capital gains exemption is available in cases where the land or building which is compulsorily acquired was used by the taxpayer for the purposes of the business during the two years immediately preceding the date of compulsory acquisition and the assessee purchases any other land or building or constructs any building, within two years from the date of compulsory acquisition, for the purposes of shifting or re-establishing the industrial undertaking or setting up another industrial undertaking. In such cases the capital gain will not be charged to tax to the extent it is utilised for purchasing or constructing the specified new asset.