can avail tax exemption from Capital gains benefit by reinvesting proceeds from
sale of said capital assets, in Residential House property in India, however
one may need to fulfill certain conditions.
have already covered below conditions to claim the said tax exemption benefit
from capital gains in Chapter 16:
Taxation of Capital Gains on Sale of Immovable Property, however for ready
reference we have reiterate below:
i. If person sell a Long Term Capital Asset viz,
above securities, other than residential house, he/she can claim a tax
exemption from Capital Gains if he/she buy a new residential house one year
before or within two years from the sale date of said Capital assets, or if he/she
construct a new residential house within three years from the sale date of said
ii. If person has not purchased/constructed the
new residential house before July 31, (i.e. due-date for filing tax return for
the year in which the said Capital Assets is sold), and he/she would like to
claim tax exemption then he/she has option to open a banking a/c under the
‘Capital Gains Account Scheme’ (CGAS) with a Nationalized Bank and deposit the
amount of net sale consideration and utilize the said deposits for
purchasing/construction of the new residential house within the time lines
prescribed above. However, if the amount deposited in CGAS is not utilized
wholly or partly in purchasing/construction of the new residential house
property within the timelines prescribed in paragraph-i above, then such
unutilized amount would be subject to LTCG tax in the 3rd year from the date of
transfer of Capital Asset.
iii. Having obtained the tax exemption as above
he/she must hold the new residential house for at least 3 years from the date
of its purchase/construction as otherwise he may lose the Tax exemption. If the
same is sold before 3 years, then while computing Capital Gain from sale of the
said new residential house, the cost of acquisition of the new residential
house shall be reduced by the amount of exemption claimed earlier and thereby
resulting into higher taxable capital gain.
iv. If person invests the entire net
consideration* from sale of such capital assets, he/she shall get total
exemption of Capital Gains tax. However, if he/she invests partial net
consideration, then the exemption shall be available in the same proportion as
the proportion of amount reinvested in the residential house bears to the sales
proceeds received on sale of the Capital Assets: The same is reiterated for
ready reference as below:
of exemption =Amount of Capital X Amount reinvested in house
Capital Gains Gains on old asset Net sale consideration of old asset
For meaning of Net Sale Consideration, one shall refer to FAQ-1 of
Chapter 16: Taxation of Capital
Gains on Sale of Immovable property, of this booklet.
v. The tax exemption from Capital gain on
capital assets shall be restricted to Rs. 10 Crores. Hence any investment over
Rs. 10 Crores will be ignored.
vi. A person should not own more than one residential house (other than the new
residential house) on the date of sale of capital assets.
vii. A person should not purchase another
residential house within a period of 1 year from the date of sale of old
capital asset or construct a residential house within a period of 3 years from
the date of sale of old capital asset. Failure to meet this condition will make
tax exemption claimed above taxable in year in which such other residential
house is purchased/constructed.