Invest Your Capital Gains Into Residential Property And Avail Tax Exemption

The capital gains realised from the sale of capital assets are dealt with under Section 54F. Let's have a look at the contents of this section.

What is the purpose of Section 54F of the Income Tax Act?

Section 54F of the Income Tax Act of 1961 exempts long-term capital gains received from the sale of a capital asset other than a residential property from taxation. So, if you sell a capital asset like as stocks, bonds, jewellery, gold, or other valuables and reinvest the proceeds in the purchase or building of a home, the profits gained on the sale of the capital asset are tax-free under Section 54F.

Make a claim for a Section 54F exemption.

You must meet some fundamental conditions to seek a legitimate exemption under Section 54F of the Income Tax Act. The following are the requirements:

Individuals and Hindu Undivided Families are eligible for the exemption (HUFs)

To qualify for the exemption, the revenues from the sale must be utilised in the following way:

To purchase a new residential property one year prior to the asset's selling date.

To purchase a residential property within two years following the asset's sale.

Within three years of the asset's sale, construct a residential property.

The amount of the deduction that is allowed for tax exemption under Section 54F.

The amount of the deduction under Section 54F of the Income Tax Act is determined by the amount invested in a residential property. If you spend all of the earnings to buy a dwelling, you can claim an exemption for the whole amount under Section 54F. If you put a portion of the money into a residence, however, the exemption will be decreased accordingly.

The ramifications of selling the asset

The residential property that you acquire or build with the capital gain selling proceeds should not be transferred or sold within three years of acquisition or completion. If you transfer the home property within three years, the exemption provided by Section 54F of the Income Tax Act would be revoked, and any capital gains will be taxed beginning in the year of the transfer.