Category: Financial Planning

Capital Gains on Sale of Property – Section 54EC benefit

What are Capital Gains?

Profits or gains arising from transfer of a capital asset are called “Capital Gains” and are charged to tax under the head “Capital Gains”. • There should be a Capital Asset • Capital Asset should be transferred during the previous year • Gains/Loss has to be computed • Tax has to be paid on such gains

What are Capital Assets?

It includes all types of assets whether movable/immovable, tangible/intangible etc., but excludes the following

  1. a) Stock in trade, consumable stores/raw materials held for the purpose of business/profession
  2. b) Personal effects including wearing apparel and furniture other than:
  3. Jewellery
  4. Archaeological collections

iii. Drawings/Paintings/any work of art

  1. c) Agriculture land in India

What are Types of Capital Assets

Taxability of capital gains from different assets

1. Short Term Capital Assets (STCA): An asset, which is held by an assessee for less than 36 months, immediately before its transfer, is called Short Term Capital Assets.  Anything  held for more than 36 months in case of physical assets is considered as Long Term Capital Gains


The period of 36 months is taken as 12 months under following cases:

  • Equity or Preference shares,
  • Securities like debentures, government securities, which are listed in recognized stock exchange,
  • Units of UTI
  • Units of Mutual Funds
  • Zero Coupon Bonds



Capital gain on sale of Property Transactions is exempted on purchase/construction of specified assets under section 54,54B,54EC,54F of the Income Tax Act, subject to few conditions. These exemptions have been tabulated on the basis of following points.

Further these exemptions are in depended to each other and person can claim combination of two, if he is eligible otherwise.

a who can claim exemption Any person/ individual/ HUF Individual/HUF
b Eligible assets sold Any long-term capital asset. (min holding period = 2years)  
c assets to be acquired for exemption bond of NHAI /REC  Residential House property.
d Ttime limit for acquiring the new assets within 6months from date of transfer Purchase: 1yr back or 2year forward. Construction: 3year forward
e Exemption amount investment in the new asset or capital gain whichever is lower. The new asset should not be transferred within 2.yrs (Max. upto 50lakhs in a fin year)  Investment in the new Asset/

Net Sale Consideration * Capital Gain.

f whether CAPITAL GAINS DEPOSIT ACCOUNT scheme applicable NA yes

 *Long Term Capital Gain Exemption for Investment in Certain Bonds (Section 54EC)*

This exemption is available to an individual, HUF, company or any other person who invests the long term capital gain, within 6 months of a the transfer of the capital asset, in any of the specified bond (issued on or after April 1, 2006) redeemable after 3 years: National Highway Authority of India (NHAI), or

* Rural Electrification Corporation Ltd. (REC)*

 There is a limit of Rs. 50 lakh on the investments on or after April 1, 2007 per financial year

The face value of a bond is generally Rs. 10,000 and the rate of return correctly averages about 5.5 to 5.75 per cent. This return is added as interest from other sources in the taxable income.

Lets have an Overview of 2 Important  Sections under the CG Taxation System.

Section 54


Where the amount of capital gain is not so utilized for the purchase or construction of a new residential house before the due date of furnishing of the return of income, it shall be deposited by him on or before the due date in an account with a public sector bank in accordance with the Capital Gain Account Scheme, 1988.

If the new house property is transferred within a period of three years from the date of the purchase or construction, the amount of capital gains arising there from, together with the amount of gains exempted earlier, will be chargeable to tax in the year of sale of the house property.

Profit on Sale of Property used for Residence. A few FAQs are addressed below:

  1. Who can claim exemption?

Assessee being an individual or a HUF.

  1. Which Specific Asset is Eligible for exemption?

The capital gain arises from Transfer of Residential House Property (long term) purchased or constructed in India.

  1. Chargeable under which “Head” of income?

The Income from this Property is chargeable to Income Tax under the Head “Income From House Property”.

  1. This Property is called original asset.
  2. What is Time limit for Acquiring the new asset?

Assessee with a period of one year before the date of Transfer and after two years from the date of transfer of original assets or within a period of 3 years from the date of Transfer of original asset constructed a residential Property.

Purchase- Residential house can be purchased within 1year before transfer or within 2years after transfer.

Construction: within 3years of its acquisition.

6) What if the new asset is not acquired upto stipulated due date?

In such cases, taxpayer will have to deposit the money in “Capital Gain Deposit Scheme” with a nationalised bank or IDBI.


If the amount deposited with the Bank is not utilized wholly of partly for the purchase or construction of the new asset within the period specified then,

The amount not so utilized shall be charged u/s 45 as the Income of the previous year in which the period of the 3 years from the date of transfer of the original asset expires and the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

Section 54F

*Long Term Capital Gain from the Transfer of a Capital Asset other than Residential House Property

The exemption is available only if an individual or a HUF who transfers (or sells) a capital asset that results in a long-term capital gain, and then invests the amount of gain in acquiring a new residential house. This exemption is available subject to fulfilment of the following requirements:

The transferor assessed should purchase Asset other than Residential House Property

  • In India within a period of one year before or two years from the date of transfer or construct a residential house within three years from the date of the transfer of the original house. (Construction must be completed within these 3 years.), and
  • The new house property purchased or constructed has not been transferred within a period of three years from the date of purchase or construction.

Section 54F  of the Income Tax Act

  1. Who can claim exemption?

Assessee is an Individual or HUF.

  1. What is Time limit for Acquiring the new asset?

Purchase- Residential house can be purchased within 1year before transfer or within 2years after transfer.

Construction: within 3years of its acquisition.

  1. How much is exempt?

Investment in the new asset divided by net sale consideration *Capital gain. Amount of exemption cannot exceed capital gain.

Shriya Gokale 

Dilzer Consultants Pvt Ltd


31 October, 2019