The revenue earned from the sale of a home is taxed as a capital achieve. Depending on the holding interval, the home could also be categorized as both a short-term or a long-term capital asset.
A tax fee of 20% is levied together with surcharge and cess as relevant if the property is held for twenty-four months or extra, referred to as long-term. While the gains are taxed at slab charges if held for a brief time period, i.e for lower than 24 months.
Let us say an individual needed to shift his residence on account of sure causes and therefore he bought his outdated home. From the sale proceeds, he decides to buy one other home.
In this case, the target of the vendor was to not earn revenue by the sale of the outdated home however to accumulate one other appropriate home. If on this case, the vendor was liable to pay revenue tax on capital gains arising from the sale of the outdated home, then it will impose a hardship on him.
Under Section 54 of the Income Tax Act, a vendor can avail of tax exemption on the capital achieve arising from the switch of a residential home property. This profit is out there solely to people and Hindu Undivided Families (HUFs).
Further, the asset transferred ought to be a long-term capital asset, held for a minimum of 24 months. The taxpayer ought to have bought the second home inside India both one 12 months earlier than the date of sale of the outdated home or two years after.
If the assessee is setting up a home, then building bills incurred inside three years from the date of sale of the primary home would qualify.
The exemption under Section 54 will likely be decrease of the quantity of capital achieve on the sale of residential property or the quantity invested within the buy or building of a brand new residential property. Any remaining quantity is taxable.
The exemption could be claimed solely in respect of 1 residential home property bought or constructed in India. If a couple of home is bought or constructed, then, exemption under part 54 will likely be out there in respect of 1 home solely. No exemption could be claimed in respect of a home bought outdoors India.
But with impact from Assessment Year 2021-22, the Finance Act, Section 54 has been amended to increase the good thing about exemption in respect of funding made in two residential home properties, offered the quantity of long-term capital achieve doesn’t exceed Rs 2 crore. This possibility could be exercised by the taxpayer solely as soon as in his lifetime.
The exemption under part 54 is out there in respect of the rollover of capital gains arising on the switch of a residential home into one other residential home. However, to maintain a verify on misuse of this profit and to make sure it’s out there solely to long-term patrons, restrictions have been put in place.
If a taxpayer purchases or constructs a home and claims exemption under part 54 after which transfers the brand new home inside a interval of three years from the date of its acquisition or completion of building, then the profit granted under part 54 will likely be withdrawn.