Provision for exemption in income tax law
According to income tax law, your house can help you in saving tax. Income tax law says that if you buy a new house from the profit earned by selling a residential property, then you get tax exemption under section 54. At the same time, apart from residential property, tax exemption is available under Section 54F on buying a new house with the money received from selling any other property like shares, mutual funds, gold, land and commercial property.
However, there are some conditions for claiming tax exemption under section 54F. First condition- The income earned from selling property should be Long Term Capital Gain (LTCG). Second condition- To get tax exemption, the house will have to be purchased with the entire amount received from the sale and not just the profit.
When will it be considered as long term gain?
Whether the profit made from selling an asset is long term capital gain or not will depend on the holding period i.e. how long the asset was held and sold. The criteria for LTCG is different for different properties. For example, if a share or equity mutual fund is sold after 12 months of purchase, it is considered a long-term capital asset and the profit from it is considered a long-term capital gain.
Income tax will be saved in this way
This means that if you sell shares or equity mutual funds after holding them for at least 12 months, tax saving options open up. Under Section 54F, you can save tax by buying a new house. You just have to keep in mind that to buy or build a new house, you will have to use not just the profit but the entire money.
Will not be able to sell the house for 3 years
For tax exemption, a new house will have to be purchased within 2 years from the date of transfer of the old asset i.e. sale of mutual fund unit. In case of construction, the house should be built within 3 years. If you buy a new house even a year before selling the old asset, you can avail the discount. The house for which you have taken exemption under Section 54F, cannot be sold within 3 years of purchasing or constructing it, otherwise the exemption will expire and tax will have to be paid.