What exemptions exist under capital gains tax?

Capital gains tax arises when a capital asset, such as land, building, or securities, is sold for a profit. The Income Tax Act provides for specific exemptions under various sections to promote reinvestment, social welfare, and certain strategic asset classes. These exemptions apply to both long-term capital gains (LTCG) and short-term capital gains (STCG) under specified conditions.

1. Section 54 – Sale of Residential Property and Reinvestment in Another Residential House

• Eligible Assessee: Individual or Hindu Undivided Family (HUF)
  
• Applicable to: Long-term capital gains from sale of a residential house property
  
• Exemption Condition:
  
  • Gain must be reinvested in purchase or construction of another residential house in India within:
    
    • 1 year before or
      
    • 2 years after the sale (purchase) or
      
    • 3 years after the sale (construction)
      
• Limit: One house property (now allowed two houses if capital gains do not exceed ₹2 crore — once in a lifetime option)
  

2. Section 54F – Sale of Any Capital Asset (Except Residential House) and Reinvestment in Residential House

• Eligible Assessee: Individual or HUF
  
• Applicable to: Long-term capital gains from sale of land, commercial property, gold, etc.
  
• Exemption Condition:
  
  • Full net sale consideration must be invested in purchasing one residential house in India
    
  • Assessee must not own more than one residential house on the date of transfer
    
• Proportional Exemption: Allowed if only part of the consideration is reinvested
  3. Section 54EC – Investment in Specified Bonds

• Eligible Assessee: Any person (individuals, companies, firms)
  
• Applicable to: Long-term capital gains from land or building (not shares or movable property)
  
• Exemption Condition:
  
  • Capital gains invested in specified bonds (REC, NHAI, PFC, IRFC) within 6 months of sale
    
• Lock-in Period: 5 years
  
• Maximum Investment Limit: ₹50 lakh per financial year
  

4. Section 54B – Sale of Agricultural Land and Reinvestment in Agricultural Land

• Eligible Assessee: Individual or HUF
  
• Applicable to: Capital gains from sale of agricultural land
  
• Exemption Condition:
  
  • Land must have been used for agricultural purposes for at least 2 years prior to sale
    
  • Capital gain must be reinvested in purchase of another agricultural land within 2 years
    
• Exemption is reversed if new land is sold within 3 years
  

5. Section 10(37) – Exemption for Compulsory Acquisition of Urban Agricultural Land

• Eligible Assessee: Individual or HUF
  
• Applicable to: Capital gains from compulsory acquisition of agricultural land situated in specified urban limits
  
• Exemption Condition:
  
  • Compensation must be received after 01.04.2004
    
  • Land should have been used for agricultural purposes
    

6. Section 54D – Compulsory Acquisition of Industrial Land or Building

• Eligible Assessee: Any person
  
• Applicable to: Gains from compulsory acquisition of land/building forming part of an industrial undertaking
  
• Exemption Condition:
  
  • Capital gains reinvested in acquiring another industrial land or building within 3 years
    

7. Capital Gains Account Scheme (CGAS)

• If the taxpayer is unable to invest the capital gains by the due date of filing the return, the amount can be deposited in a CGAS account in a public sector bank.
  

This ensures continued eligibility for exemption under Sections 54, 54F, or 54B.