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Are any concessions available under the income tax laws with regard to profit on sale of residential property? |
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Concession is available by way of exemption from income tax on capital gains arising on transfer of a residential property. The exemptions are provided in Sections 54 and 54EC of the Income-tax Act (the Act). The exemption is available on re-investment of the capital gains in specified assets by the assessee.
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Who is entitled to such concessions? |
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The exemption under Section 54 of the Act is available to an assessee who is either an individual or a Hindu Undivided Family (HUF). The exemption under Section 54EC is available to any assessee.
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Is there a minimum holding period for such property before transfer to be eligible for the concessions? |
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The residential property should be a long-term capital asset i.e. it should be held by the assessee for a period of 36 months, prior to the date of the transfer.
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What is the nature of assets in which the sale proceeds should be re-invested by the assessee to avail the exemption? |
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Under the provisions of Section 54 of the Act, the capital gains should be re-invested in the construction or purchase of another residential property. Under the provisions of Section 54EC of the Act, the capital gains should be re-invested in 'long-term specified asset'. For the purpose of this provision, long-term specified asset means any bond redeemable after 3 years, issued on or after 1 April 2000, by National Bank for Agriculture and Rural Development or by National Highways Authority of India.
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Is there any time limit for such investments to be made? |
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Under the provisions of Section 54 of the Act, the assessee should, within a period of one year before or 2 years after the date on which the transfer took place, have purchased or within a period of 3 years, after the date of transfer, constructed a residential house. Under the provisions of Section 54EC of the Act, the assessee should invest the capital gains in the specified capital asset, within a period of 6 months, after the date of such a such transfer.
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What are the restrictions on transfer of such newly acquired or constructed property or long-term capital asset? |
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Under Section 54 of the Act, there are no restrictions on transfer of such newly acquired or constructed property. Under Section 54EC of the Act, where the long-term capital asset is transferred or converted into money at any time, within a period of 3 years, from the date of acquisition, the exemption stands withdrawn. The exemption under Section 54F of the Act stands withdrawn if the assessee transfers the residential property, within a period of 3 years of the purchase or construction.
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Are there any concessions in the income tax laws for investment of capital gains on transfer of any other capital asset if the gains are re-invested in a residential property? Is there any time limit for making such an investment? |
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Under Section 54F of the Income Tax Act, 1961 capital gains arising on transfer of any long-term capital (other than a residential property), would be exempt from income tax if the capital gain is re-invested in a residential property. The assessee should either (i) purchase a residential house within a period of one year before or two years after the date on which the transfer took place, or (ii) construct a residential house within a period of 3 years, after the date of transfer.
The exemption under this provision would however not be available if the assessee:-
- owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
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- purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
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- constructs any residential house, other than the new asset, within a period of 3 years after the date of transfer of the original asset.
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