The Income Tax Act provides certain exemptions on sale of house property having long term gains. These exemptions are provided under Section 54 and Section 54EC.

Section 54:
Section 54 gives relief to a taxpayer who sells his residential house and from the sale proceeds he acquires another residential house. Further, in order to avail the exemption under Section 54, certain conditions must be fulfilled, which are as follows:
– The benefit of section 54 is available only to an individual or HUF.
– The asset transferred should be a long-term capital asset, being a residential house property.
– Within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a period of three years from the date of transfer of the old house. In case of compulsory acquisition the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).

Note:
With effect from Assessment Year 2021-22, the Finance Act, 2020 has amended Section 54 to extend the benefit of exemption in respect of investment made in two residential house properties. The exemption for investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of longterm capital gains does not exceed Rs. 2 crores. If assessee exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year.

Illustration
Mr. Raj purchased a residential house in April, 2023 and sold the same in April, 2024 for Rs. 8,40,000. Capital gain arising on sale of house amounted to Rs. 1,00,000. Can he claim benefit of section 54 by purchasing/constructing another residential house from the capital gain of Rs. 1,00,000?
– Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. With effect from assessment year 2018-19, the period of holding in case of immovable property, being land or building or both, is reduced from 36 months to 24 months, to qualify as long-term capital asset. In this case the house property is sold after holding it for a period of less than 24 months and, hence, it is a short-term capital asset. The benefit of section 54 is not available in respect of a short-term capital asset and, hence, in this case Mr. Raj cannot claim the benefit of section 54.

Illustration
Kumar HUF purchased a residential house in April, 2016 and sold the same in April, 2024 for Rs. 8,40,000. Capital gain arising on sale of house property amounted to Rs. 1,00,000. Can the HUF claim the benefit of section 54 by purchasing a new house from the capital gain of Rs. 1,00,000?
– Exemption under section 54 can be claimed in respect of capital gains arising on transfer of capital asset, being long-term residential house property. This benefit is available only to an individual or HUF. In this case all the conditions as provided in section 54 are satisfied and, hence, Kumar HUF can claim the benefit of section 54 by purchasing/constructing a residential house within the time-limit as provided under section 54.

Amount of exemption under Section 54
Exemption under section 54 will be lower of following :
Amount of capital gains arising on transfer of residential house; or
Amount invested in purchase/construction of new residential house property [including the amount deposited in Capital Gains Deposit Account Scheme].

Capital Gain Deposit Account Scheme
To claim exemption under section 54, the taxpayer should purchase another house within a period of one year before or two years after the date of transfer of old house or should construct another house within a period of three years from the date of transfer. If till the date of filing the return of income, the capital gain arising on transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains Deposit Accounts Scheme, 1988 (hereafter referred as Capital Gains Account Scheme). The new house can be purchased or constructed by withdrawing the amount from the said account within the specified time-limit of 2 years or3 years, as the case may be.

Section 54EC
There may be cases where the seller may not be wanting to buy another residential property (which is a necessity for claiming exemption under Section 54). In such a case, they still can claim exemption on long term capital gains on sale of house property by reinvesting the money in specified bonds.

Section 54EC allows exemption of LTCG on sale of land and building, if the profit is reinvested in certain specified bonds, within six months from the date of sale of the house.

Having stated that, the specified bonds include those issued by
– The Railway Finance Corporation,
– The National Highways Authority of India,
– The Rural Electrification Corporation, etc.

Note:
The upper limit is capped at Rs 50 lakhs, for this investment with a lock-in period of five years. More importantly, this exemption is available on sale of residential, as well as non-residential properties. The interest earned on these bonds, which is 5.25% annually, is entirely taxable. However, the maturity proceeds of the bonds are fully tax-free.

Now that you know the implications and capital gains on sale of house, make sure that you make the best use of the points mentioned above.

However, if you still have doubts regarding capital gain on sale of house property, then leave a comment below or reach out to the TaxHelpdesk’s experts today. For more updates on Taxation, Financial and Legal matters, join our group on WhatsApp, channel on Telegram or follow us on Facebook, Instagram, Twitter and Linkedin!

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Old Tax Regime (FY 2022-23, FY 2023-24 and FY 2024-25) New Tax Regime Income Tax Slabs Below 60 years Between 60-80 years Above 80 years FY 2022-23 FY 2023-24 FY 2024-25 Up to ₹2,50,000 NIL NIL NIL NIL NIL NIL ₹2,50,001 – ₹3,00,000 5% NIL NIL 5% NIL NIL ₹3,00,001 – ₹5,00,000 5% 5% NIL 5% 5% 5% ₹5,00,001 – ₹6,00,000 20% 20% 20% 10% 5% 5% ₹6,00,001 – ₹7,00,000 20% 20% 20% 10% 10% 5% ₹7,00,001 – ₹7,50,000 20% 20% 20% 10% 10% 10% ₹7,50,001 – ₹9,00,000 20% 20% 20% 15% 10% 10% ₹9,00,001 – ₹10,00,000 20% 20% 20% 15% 15% 10% ₹10,00,001 – ₹12,00,000 30% 30% 30% 20% 15% 15% ₹12,00,001 – ₹12,50,000 30% 30% 30% 20% 20% 20% ₹12,50,001 – ₹15,00,000 30% 30% 30% 25% 20% 20% ₹15,00,000 and above 30% 30% 30% 30% 30% 30%

192 Payment of salary Resident, Non-Resident Basic exemption limit of employee Normal Slab Rates 192A Premature withdrawal from EPF Resident, Non-Resident 50,000 10% (if PAN is furnished).
20% (if PAN is not furnished – Budget 2023) 193 Interest on securities Resident Debentures- 5,000

8% Savings (Taxable) Bonds 2003 or 7.75% Savings (Taxable) Bonds 2018- 10,000

Other securities- No limit

10%
(Through Budget, 2023 exemption of TDS on interest from listed debentures has been removed. Therefore, tax is to be deducted on interest on such specified securities) 194 Payment of any dividend Resident 5,000 10% 194A Interest from other than interest from securities (from deposits with banks/post office/co-operative society) Resident Senior Citizens- 50,000

Others- 40,000

10% 194A Interest from other than interest on securities u/s 193 and interest from banks/post office/co-operative society. Resident 5,000 10% 194B Income from lottery winnings, card games, crossword puzzles, and other games of any type Resident, Non-Resident, Foreign Company 10,000 (aggregate) 10% 194BA Income from online games Resident, Non-Resident, Foreign Company NIL 30% 194BB Income from horse race winnings Resident, Non-Resident, Foreign Company 10,000 (Aggregate) 30% 194C Payment to contractor/sub-contractor Resident Single transaction- 30,000

Aggregate transactions- 1,00,000

Individuals/HUFs – 1%

Other than individuals/HUFs – 2%

194D Insurance commission to Resident i) Individuals
ii) Companies Resident 15,000
15000 5%
(Budget 2024 – This rate is reduced to 2% with effect from 1st April 2025)
10% 194DA Income for the insurance pay-out, while payment of any sum in respect of a life insurance policy. Resident 1,00,000 5%
Budget 2024 – This rate is reduced to 2% with effect from 1st October 2024 194E Payment to non-resident sportsmen/sports association Non-Resident, Foreign Company No limit 20%
*This rate shall be increased by applicable surcharge and 4% cess 194EE Payment of amount standing to the credit of a person under National Savings Scheme (NSS) Resident, Non-Resident 2,500 10% 194F Payment for the repurchase of the unit by Unit Trust of India (UTI) or a Mutual Fund Resident, Non-Resident No limit 20%
Budget 2024 –

This section is proposed to be omitted with effect from 1st October 2024 194G Payments, commission, etc., on the sale of lottery tickets Resident, Non-Resident, Foreign Company 15,000 5%
Budget 2024 – This rate is reduced to 2% with effect from 1st October 2024 194H Commission or brokerage Resident 15,000 5%
Budget 2024 – This rate is reduced to 2% with effect from 1st October 2024 194-I Rent: Resident 194-I(a) Rent on plant and machinery Resident 2,40,000 2% 194-I(b) Rent on land/building/furniture/fitting Resident 2,40,000 10% 194-IA Payment in consideration of transfer of certain immovable property other than agricultural land. Resident 50,00,000 1% 194-IB Rent payment by an individual or HUF not covered under Section 194-I Resident 50,000/month 5%
Budget 2024 – This rate is reduced to 2% with effect from 1st October 2024 194-IC Payment under Joint Development Agreements (JDA) to Individual/HUF Resident No limit 10% 194J Any sum paid by way of fee for professional services Resident 30,000 10% 194J Any sum paid by way of remuneration/fee/commission to a director Resident 30,000 10% 194J Any sum paid for not carrying out any activity concerning any business; Resident 30,000 10% 194J Any sum paid for not sharing any know-how, patent, copyright, etc. Resident 30,000 10% 194J Any sum paid as a fee for technical services Resident 30,000 2% 194J Any sum paid as fees for technical services, but the payee is engaged in the business of operation of the call center. Resident 30,000 2% 194K Payment of any income for units of a mutual fund, for example, dividend Resident No limit 10% 194LA Payment in respect of compensation on acquiring certain immovable property Resident 2,50,000 10% 194LB Payment of interest on infrastructure debt fund to Non-Resident Non-Resident, Foreign Company No limit 5%
*This rate shall be increased by applicable surcharge and 4% cess 194LC Payment of interest for the loan borrowed in foreign currency by an Indian company or business trust against loan agreement or the issue of long-term bonds Non-Resident, Foreign Company No limit 5% 194LC Payment of interest for the loan borrowed in foreign currency by an Indian company or business trust against the issue of long-term bonds listed in IFSC Non-Resident, Foreign Company No limit 4% 194LD Payment of interest on bond (rupee-denominated) to FII or a QFI Non-Resident, Foreign Company No limit 5% 194LBA(1) Certain income distributed by a business trust to its unitholder Resident No limit 10% 194LBA(2) Interest income of a business trust from SPV distribution to its unitholders Non-Resident, Foreign Company No limit 5% 194LBA(2) Dividend income of a business trust from SPV, in which it holds the entire share capital exempt the capital held by the government, and distribution to its unitholders Non-Resident, Foreign Company No limit 10% 194LBA(3) Rental income payment of assets owned by the business trust to the unitholders of such business trust Non-Resident No limit 30% 194LBA(3) Rental income payment of assets owned by the business trust to the unitholders of such business trust Foreign Company No limit 40% 194LBB Certain income paid to a unitholder in respect of units of an investment fund Resident, Non-Resident No limit 10% 194LBB Certain income paid to a unitholder in respect of units of an investment fund Foreign Company No limit 40% 194LBC Income from investment in securitisation fund received to an individual and HUF Resident No limit 25% 194LBC Income from investment in securitisation fund received to domestic company Resident No limit 10% 194LBC Income from investment in securitisation fund received to a foreign company Foreign Company No limit 40% 194LBC Income from investment in securitisation fund received to NRI Non-Resident No limit 10% 194M Certain payments by Individual/HUF not liable to deduct TDS under Section 194C, 194H, and 194J Resident 50,00,000 5%
Budget 2024 – This rate is reduced to 2% with effect from 1st October 2024 194N Cash withdrawal exceeding a certain amount Resident, Non-Resident Co-operative society: 3 Crore

Others: 1 crore

2% 194N Cash withdrawal in case person not filing ITR for last three years and the original ITR filing due date expired Resident, Non-Resident – 20 lakh to 1 crore

-1 crore

2%
5%
*If cash is withdrawn by a co-operative society the limit shall be Rs 3 Crore instead of Rs 1 Crore 194O Payment for the sale of goods or provision of services by the e-commerce operator through its digital or electronic facility or platform. Resident 5,00,000 1%
(5%, in case PAN is not furnished) 194P Payment of pension or interest to specified senior citizens of age 75 years or more Resident Basic exemption limit of senior citizens or super senior citizens Normal Income Tax Slab rates 194Q Payments for the purchase of goods Resident 50,00,000 0.10% 194R Perquisite or benefit to a business or profession Resident 20,00,000 10% 194S TDS on the transfer of virtual digital assets Resident Specified Persons- 50,000

Others- 10,000

1% 195 Income on investments made by NRI citizen Non-Resident No limit 20% 195 Income by way of LTCG referred to in section 115E in the case of NRI Non-Resident No limit 10% 195 Income by way of LTCG under section 112(1)(c)(iii) Non-Resident, Foreign Company No limit 10% 195 Income by way of LTCG under section 112A Non-Resident, Foreign Company No limit 10% 195 Income by way of STCG under section 111A Non-Resident, Foreign Company No limit 15% 195 Any other income by way of LTCG Non-Resident, Foreign Company No limit 20% 195 Interest payable on money borrowed by the government or Indian concern in foreign currency Non-Resident, Foreign Company No limit 20% 195 Income from royalty payable by the Indian concern or the government, for the copyright in a subject referred in the first proviso of section 115A or computer software referred to in the second proviso of section 115A Non-Resident, Foreign Company No limit 10% 195 Income from royalty payable by government or Indian concern in pursuance of an agreement on matters included in the industrial policy.

If the agreement for such royalty payment is entered in between 31st March 1961 and 1st April 1976

Foreign Company No limit 50% 195 Income from royalty payable by government or Indian concern in pursuance of an agreement on matters included in the industrial policy

If the agreement for such royalty payment is entered after 31st March 1976

Foreign Company No limit 10% 195 Income from technical fees payable by government or Indian concern in pursuance of an agreement on matters related to industrial policy Non-Resident No limit 10% 195 Income from technical fees payable by government or Indian concern in pursuance of an agreement on matters related to industrial policy

If the agreement for such payment is entered in between 29th February 1964 and 1st April 1976

Foreign Company No limit 50% 195 Income from technical fees payable by government or Indian concern in pursuance of an agreement on matters related to industrial policy

If the agreement for such payment is entered after 31st March 1976

Foreign Company No limit 10% 195 Any other income Non-Resident No limit 30% 195 Any other income Foreign Company No limit 40% 196B Income (including LTCG) from units of an offshore fund Non-Resident, Foreign Company No limit 10% 196C Income (including LTCG) from foreign currency bonds or GDR of an Indian company Non-Resident, Foreign Company No limit 10% 196D Income (excluding dividend and capital gain) from Foreign Institutional Investors. Non-Resident, Foreign Company No limit 20% 206AB Income (excluding dividend and capital gain) from Foreign Institutional Investors.
Payment to non-filers, i.e. those who have not filed their income tax return in the last year

Non filers do not include:
– People who are not required to file their ITRs
– NRs who do not have a PE in India

Resident No limit – 2 times the rate given in the Income Tax Act or Finance Act or
– 5%, whichever is higher 206AA TDS rate in case of Non availability of PAN Resident, Non-Resident, Foreign Company No limit Rates specified above or 20%, whichever is higher

After the issue of this Rule, there was still confusion regarding the order of utilising of ITC after it has been utilised for IGST liability. Therefore, the clarification to the said circular was issued on 23.04.2019, which is as follows:

As per the Circular No: 98/17/2019 dated 23 April 2019, it has been clarified that- As per the provisions of Section 49 of the CGST Act, credit of integrated tax has to be utilised
– Firstly, for payment of integrated tax,
– Secondly, for payment of Central tax and
– Lastly, for payment of State tax, in that order mandatorily. 

Also Read: Know Everything About GST ITC On Bank Charges

This led to a situation, in certain cases, where a taxpayer has to discharge his tax liability on account of one type of tax (say State tax) through electronic cash ledger, while the input tax credit on account of other types of tax (say Central tax) remains unutilised in electronic credit ledger.

The newly inserted rule 88A in the CGST Rules allows utilisation of input tax credit of integrated tax towards the payment of Central tax and State tax, or as the case may be, Union Territory tax, in any order subject to the condition that the entire input tax credit on account of integrated tax is completely exhausted first before the input tax credit on account of Central tax or State/Union Territory tax can be utilised.

It is clarified that after the insertion of the said rule, the order of utilisation of input tax credit will be as per the order (of numerals) given below:

Setting off of ITC

TDS on payments from Life insurance policies (Section 194DA): There is a reduction of TDS rate on payments from life insurance policies from 5% to 2%. 

TDS on commission on sale of lottery tickets (Section 194G): There is also a reduction in TDS rate on commissions from lottery ticket sales. The new TDS rate is 2%. Earlier this rate was 5%. 

Commission or Brokerage TDS (Section 194H): As per the earlier rates, there was a deduction of 5% TDS on commission or brokerage. But w.e.f., from October 1, 2024, this rate is now 2%.  

TDS on rent payments by individuals or HUFs (Section 194-IB): Rent payments made by individuals or HUFs will now face a 2% TDS rate. Earlier, this rate was also 5%. 

Certain payments by individuals or HUF (Section 194M): Now, there will be a 2% TDS on certain payments made by individuals or HUF. Earlier, this rate was also 5%. 

TDS on payments by E-commerce operators (Section 194-O): Payments by e-commerce operators to participants will now attract a TDS rate of 0.1%, down from 1%. 

Mutual funds repurchase (Section 194F): In addition to the above the TDS rate changes, there is an omission of TDS on repurchases by mutual funds or Unit Trust of India from the Income Tax Act. This is to say, that w.e.f., 1st October 2024, Section 194F will not be applicable. 

Also Read: TDS Rate Chart FY 2024-2025 | AY 2025-2026: All You Need To Know

To open a NPS Vatsalya account, following documents are necessary: 

Proof of Date of Birth of the Minor: Birth Certificate, School Leaving Certificate, Matriculation Certificate, PAN or Passport. 

KYC Documents of the Guardian: KYC documents of the guardian include documents of proof of identity and address like the Aadhaar, Driving License, Passport, Voter ID Card, NREGA Job Card, or National Population Register documents. 

Permanent Account Number (PAN) of the Guardian 

NRE/NRO Bank Account (solo or joint): In case, the minor or the guardian are Non-Resident Indian (NRI) or Overseas Citizens of India (OCI).