Key Highlights from Section 54 of the Income Tax Act (Including Recent Updates)
1. Exemption on Capital Gains: Individuals and Hindu Undivided Families (HUFs) can avail an exemption on long-term capital gains arising from the sale of a residential property, provided the gains are reinvested in another residential house.
2. Investment Timeframe:
- Purchase a new house within 1 year before or 2 years after the sale of the original property.
- Construct a new house within 3 years from the date of sale.
3. Number of Houses Eligible for Exemption:
- Typically, the exemption applies to one residential house.
- However, if the capital gains are less than ₹2 crores, the exemption can be claimed for two houses, but this benefit is allowed only once in a lifetime.
4. New ₹10 Crore Limit (Effective from April 1, 2024):
- If the cost of the new house exceeds ₹10 crores, the amount above ₹10 crores will not qualify for the exemption.
- Similarly, capital gains exceeding ₹10 crores will also not be eligible for the exemption.
5. Capital Gains Account Scheme (CGAS):
- If the reinvestment process is not completed before filing the income tax return, the gains must be deposited into a Capital Gains Account Scheme with an authorized bank.
6. Resale Restrictions:
- If the newly acquired house is sold within 3 years, the exemption will be revoked, and the previously exempted capital gains will become taxable.
The recent amendment introduces a ₹10 crore cap on the exemption, aimed at preventing excessive tax benefits in high-value property transactions.
