Tax on Capital Gains can be saved by making investments in accordance with the exemptions provided under the Income Tax Act, 1961.

Tax exemption for the Capital Gain arising out of the sale of long-term capital asset-

Investment in specified bonds –

Exemption under Section 54 EC –

1. Tax can be saved by investing in bonds issued by the National Highway Authority of India/Rural Electrification Corporation Limited/ Power Finance Corporation Limited/Indian Railway Finance Corporation Limited
2. Investment must be made within 6 (six) months from the date of sale of the asset
3. Lock-in period for the bonds-5 years from the date of sale
4. Note that you cannot claim this investment under any other deduction.
5. To be able to claim this exemption, you will have to invest before the return filing date.
6. You are allowed to invest a maximum Capital Gain of Rs.50 Lakhs in a Financial year in these bonds.
7. You should not transfer or convert/avail loan or advance with this bond as security for a period of 5(five) years, otherwise the same shall be taxable as a capital gain.
8. Tax exemption for the Capital Gain arising out of the sale of long-term capital asset (not being a residential property)-

Investment in Residential Property-Exemption under section 54F –

1. Entire capital gain shall be exempt if the net sale consideration is invested in-
2. Purchase of residential house 1 year before the transfer or 2 years after the date of transfer OR Construction of 1 residential house within 3 years after the date of such transfer
3. This exemption can be availed only if the seller is holding one residential property at the time of sale.
4. The newly constructed residential property should not be sold within 3 years of its purchase or construction.
5. Exemption will not be available if new additional residential property is purchased by the assesses within a period of 1 year or constructed within a period of 3 years.
6. Also, the amount can be deposited in Capital Gains Account Scheme (“CGAS”) i.e., if the due date of filing income tax falls before the expiry of the specified period to invest the amount the capital gain can be deposited in the CGAS account and can be withdrawn at the time of investment. If the amount deposited in the CGAS is not utilized within the time limit mentioned, then it shall be treated as income of the last year in which 3 years expire.

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