Section 54 of the Income Tax Act, 1961 provides relief to taxpayers on the capital gains arising from the sale of a residential property. It enables taxpayers to save taxes on the capital gains by investing them in specific types of assets. Here is a detailed explanation of Section 54 and its sub-sections:
1. Section 54(1): This sub-section provides that if an individual or HUF (Hindu Undivided Family) sells a residential property and makes a profit, he/she can save taxes on the gains if they invest the proceeds from the sale in another residential property within 2 years from the date of sale. The exemption amount is limited to the amount invested in the new property or capital gains, whichever is lower.
2. Section 54(2): This sub-section applies if an individual or HUF sells a residential property and makes a profit, but is unable to invest the proceeds in another residential property before the due date of filing of the tax return. In such a case, the amount of profit can be deposited in a specified bank account under the Capital Gains Account Scheme (CGAS) before the due date of filing the tax return. The individual or HUF must then use the deposited amount to purchase a residential property within 2 years or construct a residential property within 3 years from the date of sale of the original property.
3. Section 54(3): This sub-section applies to individuals who acquire more than one residential property. If the taxpayer sells one of the properties and invests the proceeds in another residential property, he/she can claim the exemption under Section 54(1). However, if the taxpayer sells more than one property and invests the proceeds in a single residential property, the exemption under Section 54(1) will be limited to Rs. 2 crores.
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| Section 54 of Income Tax: A Comprehensive Guide on Tax Relief for Capital Gains |
4. Section 54F: This section applies to taxpayers other than an individual or HUF. It provides relief on the capital gains arising from the sale of any long-term asset, including a residential property. The taxpayer can save taxes on the capital gains if they invest the proceeds in a new residential property within 2 years or construct a residential property within 3 years from the date of sale.
5. Section 54EC: This sub-section provides relief to taxpayers on the capital gains arising from the sale of any long-term capital asset, including a residential property. Taxpayers can save taxes on the capital gains if they invest the proceeds in specified bonds issued by the National Highways Authority of India (NHAI) or the Rural Electrification Corporation (REC) within 6 months from the date of sale. The maximum investment limit is Rs. 50 lakhs per financial year, and the bonds must be held for a minimum of 5 years.
