There are two section54 and 54EC under which you can save on long term capital gain arisen out of sale of house.
Under Section 54 of the I T Act you have to fulfil following conditions :
1. The amount of capital gain is invested in another residential house or property.
2. If purchasing new house , do it within one year before or two years after the date of transfer of the house you sold.
If constructing the house, do it within 3 years from the date of transfer of your house sold.
3.Do not sell your new house/flat within 3 years from its acquisition otherwise, capital gain which was exempted shall be taxed in the year you have sold the property.
These are basic rule of exemption under Section 54.
Other facility provided is that in case you are not in position to invest Capital Gain amounts immediately, then you can keep the said capital gain in Capital Gain Account scheme . These are also two types.One is like saving accounts from which money can be withdrawn for the specific purpose of purchasing the
house or constructing the house. The other is a term deposit .
BUT anyway you have to spend the money within three years for the constructing or purchasing a house , otherwise the exempted Capital Gain shall be taxed in the year in which such time expired.Section 54ECThe other method of Exemption provided in the I T Act is Section 54EC which says that if the capital gain is invested within six months from the date of transfer of the assets , in any of the long term capital asset SPECIFIED by the CBDT , such capital gain shall be exempt.Under Section 54 of the I T Act you have to fulfil following conditions :
1. The amount of capital gain is invested in another residential house or property.
2. If purchasing new house , do it within one year before or two years after the date of transfer of the house you sold.
If constructing the house, do it within 3 years from the date of transfer of your house sold.
3.Do not sell your new house/flat within 3 years from its acquisition otherwise, capital gain which was exempted shall be taxed in the year you have sold the property.
These are basic rule of exemption under Section 54.
Other facility provided is that in case you are not in position to invest Capital Gain amounts immediately, then you can keep the said capital gain in Capital Gain Account scheme . These are also two types.One is like saving accounts from which money can be withdrawn for the specific purpose of purchasing the
house or constructing the house. The other is a term deposit .
These investments shall have minimum lock in period of three years .
As per the Finance Act 2006 there are two eligible bonds for Capital Gain Exemption 1. National Highways Authority of India 2.Rural Electrification Corporation.
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