While many people buy a property as a part of their investment and later resell it to gain profit, others wish to change their residency address to a new place. The sale of properties is subject to capital gain tax, where the profit earned for selling the property is subject to taxation.
For people selling their property due to retirement, transfer, change of employment, etc., capital gain tax turns out to be an unnecessary blow to the expenses of buying a new house. This is where Section 54 of the Income Tax Act comes to your rescue.
Changes it underwent
The most recent change in Sections 54 and 54F includes a long-term capital gain tax deduction for reinvestment in residential properties. The deduction limit has been set to Rs. 10 crore, which means that any property above 10 crores is not liable to use Sections 54 and 54F. The recent change in the deduction limit was made to increase house-building activities.
What is Section 54 of the IT Act?
A special exemption offered on capital gain tax, where individuals and Hindu undivided families can claim exemptions from capital gains while selling their property if they wish to purchase or construct another residential property using the selling amount, is the answer to what is Section 54 of the Income Tax Act. This exemption is applicable if the amount from the sold residential property is used to acquire a new residential property.
Property investing is the best investment for people who seek a stable, risk-free, and secured investment. It is an age-old practice where people buy a property and resell it for higher rates. They usually forget about the taxation part. According to Section 2(14) of the IT Act, any asset, including property, is subject to taxation.
The whole reselling amount is not subject to taxation since only the profit earned through reselling is taxable. If the property being sold is used for genuine purposes, like buying a new residential property, Section 54 of the Income Tax Act provides individuals relief from the tax applicable to the profit.
Who can avail of benefits under Section 54 of the Income Tax Act?
Only an individual or HUF is eligible for the benefit of Section 54. The property should be a place of residence located in India. The transferred asset should be a residential property. Income from sold property should be taxed under the head income from house property. The taxpayer must purchase a new residential property within a year of the old house’s transfer date or build a new one within three years of the old house’s transfer date, whichever comes first.
Conclusion
Section 54 of the Income Tax Act assists individuals who are selling their houses and worried about the additional tax burden. It reduces the taxes they must pay upon selling a home, easing the financial burden of purchasing a property.
