There is no way to avoid capital gains tax on the sale of property in the case of a short-term capital gain. The entire capital benefit amount may be included in your income, and you will be taxed according to the income tax bracket you may be in. The provisions of Sections 54, 54EC, and 54F of the income tax only apply to the long-term capital gains tax on the sale of the property.
The taxes implications also depend on the kind of goods you’ve bought and sold. The provisions of Section 54 apply to residential property, Section 54F to non-residential property, and Section 54EC to all types of properties.
Section 54: The income tax provision under section 54 only applies to long-term capital gains, that is, capital gains recognized after holding an asset for three and a half years or more, and only concerning residential property. According to Section 54, you can avoid paying capital gains tax on the sale of assets that must be residential housing by reinvesting the capital gain amount into other residential assets. Additionally, you may have the following options available to you:
- After the sale of your present things, you have two years to buy brand-new residential property.
- After the sale of your present possessions, you have three years to build a brand-new residential home.
- You may buy any residential property even before one year has passed after the day the present property was sold.
- You must deposit the capital gain amount into the capital gain account scheme if you need some time to shop for new home furnishings. These are bank loans designed to store capital gains till the time the new items are no longer being purchased. You must create this account and deposit the funds before the deadline for filing your income tax return for the calendar year in which gains were reported.
Section 54F: This section is intended for long-term capital gains from the sale of non-residential property. Plot/Land, with the industrial property underneath. According to Section 54F, the following clauses may be used to reduce capital gains tax on the sale of property (non-residential):
a) You are required to invest the entire selling profits in residential property. As opposed to section 54, where you must invest the maximum Capital Benefit Amount.
b) If you do not invest the entire amount, you may be eligible for a prorated exemption. The computation is as follows: Amount Invested*Long period. Gains on capital/Net Consideration.
c) As said in segment fifty-four above, you can invest money in any manner.
Section 54EC: All types of properties are covered under this section. You can purchase special Capital Benefit Bonds available under Section 54EC, which are well worth the capital benefit of the transaction if you do not need to buy any additional residential property following the circumstances outlined in Sections 50 and 54F but still need to pay capital gain tax on the sale of property (whether residential or non-residential). The National Highways Authority of India and the Rural Electrification Corporation (REC) are the issuers of the approved bonds under this program (NHAI). The maximum amount that may be invested in such bonds in a fiscal year is Rs. 50 lakhs. Within six months after the property transfer, these bonds must be purchased.
Key Points to Bear in Mind
- To reduce taxes on capital gains arising from the sale of other possessions, you must shop for the best residential possessions. translates to the inability to buy property or industrial equipment to avoid paying capital gains tax.
- You are only allowed to keep one additional item in addition to the brand-new residential items when claiming segment 54F. However, in section fifty-four, there is no such situation.
- New residential property cannot be sold during the first three years of purchase.
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