Discover how section 54F can slash your homebuying tax burden
What's the story
Tax exemptions and homebuying: two words that can send even the most seasoned investors into a frenzy.
But what if we told you that there's a section of the Income Tax Act designed to make your homeownership dreams a little lighter on the wallet?
Enter Section 54F! This unsung hero offers substantial tax relief for homebuyers, helping you unlock the benefits of investing in residential properties.
So, let's break it down—making tax exemptions less of a puzzle.
Basics
Understanding Section 54F
Section 54F of the Income Tax Act provides a complete exemption from long-term capital gains tax to individuals who invest the proceeds from the sale of any asset (other than a residential house) in a new residential property.
The new property must be purchased one year before or two years after the sale, or it must be constructed within three years of the sale of the asset.
Who qualifies?
Eligibility criteria
In order to be eligible for exemption under Section 54F, an individual should not own more than one residential house, apart from the new investment, on the date of transferring the original asset.
Further, they should not buy any other residential property within two years or build another house within three years after claiming this exemption.
Numbers game
Calculation of exemption
The quantum of exemption under Section 54F is determined proportionately by comparing the cost of the new house with the net sale consideration received from the sale of the original asset.
If the entire sale consideration is invested in buying or constructing a new house, then the entire capital gains are exempted.
Otherwise, if only a part of the sale consideration is invested, then the exemption will be granted proportionately.
Fine print
Conditions and limitations
There are numerous stipulations to claim this exemption.
For example, if you sell your new property within three years from the date of its purchase or the completion of its construction, the tax benefits claimed under Section 54F will be withdrawn.
Plus, from AY 2021-22 onwards, there is a cap of ₹50 lakh on the capital gains that can be claimed as exempted under this section.
Smart moves
Tips for maximizing benefits
To maximize Section 54F exemptions:
invest promptly in your new home after selling the asset;
keep thorough records and proofs of your investments and sales;
seek advice from a tax professional for complex situations;
and stay updated on any changes to this section in future budgets, as they may affect your eligibility or benefits.