All about Capital Gains

Capital Gains Tax

Capital Gain is any profit or gain on sale of any capital asset. The profit is accounted as income of the individual or company and is taxable by law. Capital Gain Tax are divided as –


  • Short Term Capital Gain (STCG)-


  • Capital Gain on any asset held for less than 36 months is Short Term Capital Gain.
  • In case of immovable properties like real estate i.e. land, building and house the holding period is reduced to 24 months from 36 months.


  • Long Term Capital Gain (LTCG)-
  • Capital Gain on any asset held for more than 36 months is Long Term Capital Gain.
  • In case of Immovable properties, the holding period is more than 24 months.
  • You can avail for tax exemption in Long Term Capital Gain by reinvesting.
  • Long Term Capital Gain (LTCG) is chargeable at 20 percent with the payment of cess and surcharge over and above.


Long Term Capital Gain Tax Saving-

Re investing in Real Estate can save your capital gain tax.


Law related to Capital Gain Tax-

Section 54 & 54F of the Income Tax Act

Section 54 EC (for reinvest in bonds)


Maximum Amount that can be reinvested –  Rs 2 Cr

Over and above Rs 2 Cr would be taxable under capital gain tax.


Points to consider in Capital Gain Tax saving-

Can be used to re-invest or construct a house


Can re-invest in 2 properties

  • Earlier it was valid only for 1 property but now the tax benefit can be availed in 2 properties also. 
  • But still the limit would Rs 2 Cr only.


Reinvestment Timeline-

  • Two-year period after selling your old property is the timeline available to re-invest in a new property to avail capital gain tax benefits.
  • You can claim tax exemption under section 54F even in case you buy a property up to one year prior to selling your old property.
  • In case of under construction reinvestment, the construction should be completed within 3 years from the sale of your property.


Limitation in case of multiple properties

  • You cannot hold any other asset besides the one you are selling to be eligible for the tax benefit under section 54F.
  • It can be said that, if you hold a property even after selling one, you are not entitled to the tax exemption under 54F.


Capital Gain Account Scheme(CGAS)-

  • In cases where you have not utilized the capital gain amount in reinvestment and need to file IT returns then you can use the Capital Gain Account Scheme (CGAS). 
  • In Capital Gain Account Scheme (CGAS) you would have to deposit the capital gains amount and keep it there until you use it to reinvest.


Capital Gain Tax benefit can be cancelled-

Under section 54F where you avail the tax benefit on capital gain by reinvesting would be cancelled or reversed if you sell the new property within two-year period. In such a situation you would have to pay capital gains tax that you were omitted from earlier.


It can only be availed once in a lifetime-

You cannot avail this tax benefit multiple times so be wise when you make use of it.

Reinvesting in Specific bonds-

After sale of property if you need to avail for capital gain tax benefit but not reinvest in a new real estate. The other exemption is reinvesting in certain government bonds under section 54 EC.

  • Bonds that you can invest in are – 
  • Bonds issued by National Highway Authority of India (NHAI) or 
  • Bonds issued Rural Electrification Corporation (REC).
  • You can reinvest in the bonds within a period of 6 months to avail the benefit.
  • The locking period of 5 years is necessary to avail the tax exemption. 


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