Selling shares to buy a ₹50 lakh flat: Can I claim long-term capital gains tax exemption in parts?

You can claim tax exemption on long-term capital gains from selling shares by investing them in a residential house property. However, there is often some confusion about the right way to claim such tax exemption. Today's Q&A addresses this issue in response to a reader's query.

• Can I claim ₹25 lakh capital gains tax exemption if I pay this amount to the builder or owner in this financial year and balance ₹25 lakh in the next financial year?
• Is stamp duty eligible for capital gains tax exemption?
• Do I need to open a separate savings account, or will my current savings account work for depositing the sale proceeds of my shares?
• Is there any other tax I have to deduct while paying for the residential property?
• Is the capital gains tax exemption available for both long-term and short-term capital gains?

Answer: Section 54F of the Income-tax Act, 1961 allows an individual and HUF exemption from long-term capital gains (LTCG) arising from the sale/transfer of a capital asset other than a residential house if the net sale proceeds are utilised for acquiring a residential house property in India within the prescribed time period.

The exemption under section 54F is available only in respect of LTCG and not for short-term capital gains (STCG).

There is no minimum amount of LTCG or net sale proceeds of a capital asset for being eligible for exemption under Section 54F.

However, there is a maximum limit of ₹10 crore for the cost of the house, with reference to which the exemption will be available.

The ready-to-move-in house has to be purchased within a period of two years from the date of sale of the shares. In case you have already bought a house within one year before the date of sale of the shares, you can still claim this exemption.

You can claim exemption in respect of shares sold during different years as long as the money is utilised within two years from the date of sale of the shares for buying the flat/bungalow.

The exemption can be claimed in the year in which the shares are sold and not in the year in which payment for the house is made, as payment can be made within two years from the date of sale of shares.

You do not have to open a fresh savings account to deposit the sale amount. You can deposit the same in your current savings account from which you can pay for the purchase of the residential house property.

The amount so deposited can be utilised for the purpose of making payment for acquiring the property within the time prescribed.

In case the sale value or stamp duty value of the house to be bought is ₹50 lakh or more, you have to deduct tax at 1% from the payment made to the seller. The stamp duty paid is considered a part of the cost of the new house and, therefore, is eligible for exemption from LTCG tax.

Here's a summary of the above for easy understanding: