Capital Gains Tax on Property - Section 54, 54EC, 54F of Income Tax Act - YouTube

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Hello, my name is Mukul, and welcome to Asset Yogi.

Friends, many subscribers have asked this question that if we sell any property,

So how much tax do we have to pay on that? And Is there any way to save that tax or not?

So in this video, we are going to talk about your capital gains tax related to property.

Now, What is Capital Gains Tax? See property is a capital asset.

In the video, I will talk about what are the other Capital Asset.

Whenever we sell any capital asset, So if we get any profit from that is called capital gains.

There can be two types of capital gains If you sell the property early,

you will get short term capital gains,

If you hold it for a long time and sell it later you will get the Long term gain.

Both are different types of taxes, So in this video, we will also see the definition of both

short term and long term tax and also understand how this tax is levied.

And what are the ways we have to save long-term tax?

In this video, we will try to cover all types of properties.

Whether it is your residential property or commercial property or a plot.

So you should watch this video till the last

so that you can understand all the clauses very well, Let's start the video

Music

First of all, let us understand some terms,

so here it is necessary to understand the capital asset first of all,

It will depend on how our tax is treated.

What is Capital Asset?

Land, Building, House Property

Shares, bonds, mutual funds

gold, jewelry, patents,

trademarks, leasehold rights, vehicles, and machinery

Long-term assets that can generate cash flows in the future are capital assets.

But here an important exclusion has been kept, especially for tax treatment.

Rural agriculture land is a capital asset, if we generally talk about a long term asset,

it is a long-term asset but it is excluded from the definition of a capital asset.

Rural agriculture land means the agricultural land outside the urban area, that is,

the agricultural land outside the municipal limits is considered rural agricultural land.

And it is excluded from this definition,

that means that no capital gains tax is levied on rural agricultural land.

But if any capital gain or any profit is made by selling on the remaining capital assets,

it is called capital gains tax. So let's understand this with an example.

If we talk about residential property, there are two types of capital gains tax,

one is short-term capital gains tax and the other is long-term capital gains tax.

How do we differentiate between short term and long term,

it depends on the time limit, and how long you hold that property.

If you have held that property for less than 24 months i.e. from the time of purchase to sale,

if it was less than 24 months, then it falls under the category of short term capital gains

and short-term capital gains tax will be levied on it.

And if this time is more than 24 months then it is subject to long-term capital gains tax.

In earlier times it was limited to 36 months. i.e. it was 3 years.

Now, this has been reduced to 24 months.

And how is the tax rate calculated?

Short Term Capital Gains Tax whatever your income tax slab rate will be,

if you fall in the 30% bracket then it will be 30% and if you fall in 20% then it will be 20%

Long term capital gains tax has a flat rate of 20%, but if it doesn't need to 20%,

because you get exemption on it.

If we talk about Indexation Benefit, so on short term capital gains tax

there no benefit is on indexation benefit.

Indexation means that there is no inflation benefit.

So if you will directly deduct the amount you bought and sold from the property,

the price you sold will be minus by the price you bought,

it will be treated as your capital gain and short-term capital gains tax will be applicable on it.

On the other hand, if we talk about Long Term Capital Gains Tax,

then here you get indexation benefit i.e., you get the benefit of inflation.

The amount of inflation that has increased is removed,

after that, capital gains made by you are taxed.

How this calculation is done? I will tell you in any upcoming videos.

And we talk about the other advantage,

you do not get any kind of exemption in short term capital gains tax,

You get exemption in Long Term Capital Gains Tax.

As I said, you can get benefits in three ways. Now we discuss those three ways.

How Can You Save on Long Term Capital Gains Tax,

in the residential property and other properties too

If we talk about residential property, first of all, it is covered under section 54 of income tax.

Who can claim the benefit under this? Any individual or Hindu undivided family

Whoever has the ownership of that residential property.

And further buys some other residential property.

So what are the eligible assets sold here, any residential house property.

Note that this clause, this section is applicable only on residential house property

if you have sold any property of any other type if it is not covered under this section

So the benefits which are available under section 54 of this method will not be available.

The benefits of the second section will be available and

what is meant by the second residential house ?

The property should be a constructed property that you are selling

if you are selling the residential plot then you will not get the benefit on it.

And there should be a minimum holding period of 24 months as we talked about earlier.

And which property do you have to buy

the assets to be acquired up to 2 residential house properties.

This new current budget was announced in 2019.

If you buy two residential properties, you will get an exemption from capital gains tax.

Here also you cannot buy a residential plot. If you buy a plot with that money from the

capital gain amount, then you will not get tax exemption.

And you can use the amount of capital gains for the purchase or construction

Purchase means to buy two properties even if you construct them.

And it's not necessary, that you buy 2 properties or build a property and

if your entire capital gain amount is invested in it then you will get the complete exemption.

And secondly, remember one more thing

time limit,

if you are buying a residential property.

So either when you have bought a property before 1 year after selling your old property or

after selling it i.e. you have bought the property after 2 years of that

then you will get tax exemption.

And by chance, if you are constructing a property the new property we are talking about

if you are constructing then for the coming 3 years if the construction is completed

then you will get text exemption.

There are some other important conditions related to Sector-54.

The first thing here is you have to invest only the capital gains amount.

If you do more than that then there is no problem

but you will get tax exemption only on the amount of capital gains you have.

I will give you an example of this.

Suppose you bought a property of 25lakhs 5 years ago

And today you sold that property at 50lakhs

So your capital gain amount is 25lakhs.

So it is not that you have to invest the entire 50 lakhs in any property.

If you also invest the capital gains amount which is 25 lakhs,

then you will get a complete tax exemption.

And the second, the maximum capital gains can be claimed up to 2 crores,

on which you can claim this tax exemption.

And you can claim this tax exemption once in lifetime under section 54

And exemption will be reversed if the new property you purchased

Which we were talking about a new property if you sold it within 3 years of purchase

If you sell the new property within 3 years from the day you bought that property,

The tax exemption you got will be reversed.

All that amount will be added to you the year in which you will sell the new property

and tax will be charged on it according to income tax.

That is, the treatment of short term capital gains tax will be the same if you fall in the 30% bracket.

Let's say If you had 25 lakhs capital gain, then 30% of it will be your tax.

And here you have to keep one more thing in mind,

whatever your capital gain amount comes. that 25 lakhs we are talking about

You have to invest it in Capital Gain Account Scheme

You can get this capital gains account scheme in many banks.

It is available almost in every PSU bank. And also in many private banks.

So this is a special account in which you have to keep your money If you want tax exemption.

Otherwise, If you keep this amount in your savings bank account,

then you will not get this tax exemption.

So here we talked about section 54.

This means if you sold any residential property

and instead, you bought residential property

and bought up to 2 properties then you will get this tax exemption.

Now let's talk about the rest of the properties and the rest of the capital assets.

So in section 54 EC, if you sell any kind of property or any other capital asset,

So let us understand what kind of benefit there is.

Who can Claim under section 54 Ec Any person can claim.

And which are the eligible assets that you will sell under it.

any capital asset which means stocks, Bonds, Mutual Funds, house property,

commercial property, plot everything gets included here.

And the assets you will sell with these assets

should have a minimum holding period of 3 years.

If there is no holding period of 3 years

like in the previous clause we saw the holding period of 2 years, of 24 mounts,

Here it is of 3 years

if you are claiming tax exemption under section 54 EC,

If you do not have 3 years holding period, you will not get the tax exemption.

And here on which assets you have to invest

here there are specified bonds, which have a minimum lock-in of 5 years.

And these are the bonds of NHAI i.e. National Highways Authority of India

and Rural Electrification Corporation.

These are for 5 years, even if you have invested in any bond of fewer than 5 years of

these two organizations, you will not get it. There should be a minimum lock-in of 5 year

Only after that, you will get a tax exemption under section 54 EC.

Time Limit, You have to invest here within 6 months.

Whenever you sell any capital asset, you have to invest it in NHAI or REC within 6 months.

The maximum you can invest in up to 50 lakhs.

And here also you have to invest only the capital gains amount.

As we saw under section 54.

You do not have to invest the total proceeds of 50 lakhs.

If you have capital gains of 25 lakhs, you have to invest that amount only.

Your maximum capital gain can be up to 50 lakhs.

let say if you bought bonds worth one crore. So you will get a tax exemption of only 50 lakhs.

Here are some more important points.

Here you do not need to open a capital gains account as in section 54

If money comes into your savings account you can invest from there as well.

But keep one thing in mind that here you will not get many returns.

Here only returns of 5.5% - 6% are available in these bonds

and they are also taxable according to your income tax slab,

According to your income tax bracket. These returns will be taxable.

if you do not want to buy a residential property for long term

then you can invest in it otherwise wise if we look at the point of view of returns

then maybe it would be better to invest in residential property.

So anyway section 54 EC option is also available.

Finally, we come to the third option section 54 F.

Who can claim in section 54 F ? Any one individual or Hindu undivided family

And which assets are eligible here.

Any capital asset other than house property

Note that house property is covered under section 54.

Now the rest of the assets are being covered here.

This section 54F works very much like section 54.

But there was talk of dedicated house property

and here all the rest of the assets are being covered.

Such as Stocks, Bonds, Mutual Funds, commercial property, plot

You Sold any property other than residential property.

But there is a condition here Any taxpayer who is claiming exemption here

should not have more than one house property,

only then he will get tax exemption under section 54 F.

and what kind of assets can be acquired.

Only residential house property will be bought here, then only there will be an exemption.

And like we talked about residential property, you can buy a house but if you buy a plot then

you will not get tax exemption on it.

And here you can buy also, and construction too

What is the time limit?

If you buy, then 1 year ago i.e. when you have sold that property,

if you had bought any property before that, then you will get tax exemption within 1 year.

Or if you have bought a property even after 2 years, you will still get tax exemption,

if you are doing construction on the property then you can do the construction only after 3 years,

if it is more than 3 years then you will not get the exemption.

Suppose, if your construction is completed in 4 years, then you will not get the exemption.

But if your construction is completed within 3 years,

then you will get exemption under section 54f.

And what are the other important conditions?

Please pay attention, you have to invest the entire Sales Proceeds.

So we were talking about 50 lakhs, if your asset is sold for 50 lakhs,

then here you have to invest the entire 50 lakhs. Even if your capital gains are 25 lakhs.

But suppose, if you don't invest this full 50 lakhs if you invest 25 lakhs

which was your capital gain amount then it is 50% of the sale proceeds

then the tax exemption you will get will be 50%

So if you had a capital gain of 25 lakhs, then you will get a tax exemption of 12,50,000.

Take care of this

Here It differs slightly from section 54. Section 54 F

And the rest of the clauses are similar if you bought a new property and sold it

within 3 years, then whatever tax exemption you got will be reversed,

And the tax will be applied, according to your income tax slab will be applicable.

And here also you have to keep the amount under capital gains account scheme itself,

otherwise, you will not get a tax exemption.

So here most of the clauses of section 54F are similar to section 54

but here the big difference is that you have to invest the entire sale process,

so many times people get confused here, you must remember this.

So in this video, we have seen 3 ways.

How do we sell a property and how can we save tax on the capital gains generated by it.

Residential property covered under section 54. After that commercial property or a plot

or any other kind of property, it can be covered under section 54 EC or

it can be covered under section 54 F,

So if you liked this video then please like and share it With your friends and family members,

they may also be confused that how this tax is levied whenever we have any capital gain,

by selling any property and

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