Types of Capital Gains Exemptions Under the Income Tax Act, 1961

The Income Tax Act provides multiple exemptions to reduce or eliminate capital gains tax liability if the proceeds are reinvested in specified assets or meet certain conditions. Below is a categorized list of key exemptions:

1. Exemptions for Residential Property Reinvestment

(A) Section 54 – Sale of Residential Property

• Eligibility: LTCG from sale of a residential house property.
• Exemption: Reinvest in another residential property(in India).
• Conditions:
  • Purchase 1 year before or 2 years after
  • Construct within 3 years.
  • Limit: Exemption = Capital gain or investment, whichever is lower.

(B) Section 54F – Sale of Any Asset (Except Residential Property)

• Eligibility: LTCG from sale of any asset (e.g., land, shares, gold).
• Exemption: Reinvest in one residential property(new or under construction).
• Conditions:
  • Must not own more than one residential house(other than the new one).
  • Full exemptionif entire sale proceeds are invested.

(C) Section 54EC – Reinvestment in Bonds

• Eligibility: LTCG from immovable property or specified assets.
• Exemption: Invest in NHAI/REC bondswithin 6 months.
• Limit: ₹50 lakh per financial year.
• Lock-in: 5 years (cannot sell/redeem early).

2. Exemptions for Business/Agricultural Assets

(A) Section 54B – Sale of Agricultural Land

• Eligibility: LTCG/STCG from sale of urban agricultural land.
• Exemption: Reinvest in another agricultural land(rural/urban).
• Time Limit: 2 years from sale.

(B) Section 54D – Compulsory Acquisition of Industrial Land/Building

• Eligibility: Capital gains from government-acquired industrial property.
• Exemption: Reinvest in new industrial land/buildingwithin 3 years.

(C) Section 54GA – Relocation of Industrial Undertaking

• Eligibility: Gains from shifting business from urban to rural areas.
• Exemption: Reinvest in new business assetswithin 3 years.

3. Exemptions for NRIs & Foreign Assets

(A) Section 115F – NRI Reinvestment in Foreign Exchange Assets

• Eligibility: LTCG from foreign exchange assets(shares, bonds, deposits).
• Exemption: Reinvest in specified assetswithin 6 months.
• Tax if not reinvested: Flat 5%(instead of 20%).

(B) DTAA Benefits (India-Mauritius/Singapore Treaties)

• Eligibility: NRIs from treaty countries (e.g., Mauritius, Singapore).
• Exemption: 0% LTCG taxon shares if held before April 1, 2017.

4. Other Key Exemptions

(A) Section 10(37) – Rural Agricultural Land Sale

• Full exemptionif land was compulsorily acquired by the government.

(B) Section 10(38) – LTCG on Listed Equity Shares (Abolished in 2018)

• Earlier: Exempt if securities transaction tax (STT) was paid.
• Now: 10% LTCG tax(if gains > ₹1 lakh).

(C) Section 47 – Non-Taxable Transfers

• Exempt transactions:
  • Gifts to relatives.
  • Amalgamation/demerger.
  • Conversion of securities into shares.

5. Comparison of Key Exemptions