Can I reinvest capital gains from the sale of land to buy tax-exempt land or commercial property?
Exemption from capital gains on sale of an asset can be claimed only if the asset sold is a long-term capital asset. The period prescribed for this purpose varies from asset to asset. Land and buildings become long-term assets if held for more than 24 months.
Long term capital gains arising on sale of land can be saved by an individual or a HUF under section 54F by investing the net sale proceeds in purchase of a house within the prescribed time limit, provided that the taxpayer does not own more than one house on the date of sale of the land.
Alternatively, a taxpayer can get tax exemption on long term capital gains arising on sale of land or building by investing index capital gains in capital gain bonds of scheduled financial institutions like REC, PFC, NHAI, PFC etc. This exemption can be claimed in respect of all transactions of long term capital gains in a year up to Rs 5 lakh per annum.
There is no provision in the Income Tax Act that provides for exemption of long-term capital gains arising on sale of land with reinvestment in commercial property or pure land.If you purchase land for building a house, you can claim exemption under section 54F, provided that the construction is completed within three years from the date of sale of the land.
Balwant Jain is a tax and investment expert and can be contacted at jainbalwant@gmail.com or X @jainbalwant.
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