In the interim Budget 2019 revealed today by Piyush Goyal, who is holding the temporary charge of finance ministry, capital gains tax exemption under section 54 of Income Tax Act is extended to two house properties from one house property. This is applicable for capital gains up to Rs 2 crore. One can avail of this facility only once in life time.
Currently to save tax on capital gains arising out of sale of a residential property, under section 54, you are allowed to invest only in one house property. And in this case, if the price of a newly purchased house is less than the selling amount of the old house, the balance amount would be subject to capital gains tax.
Now the Union Budget 2019 has proposed to increase it to two houses (either purchase or construct a house) with a limit upto Rs 2 crore. This new change to capital gains exemption will be a big boon for real estate, especially affordable housing.
The budget 2019 document says:
The benefit of rollover of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two residential houses for a tax payer having capital gains up to Rs 2 crore. This benefit can be availed once in a life time.
As for section 54 of the Income Tax Act, here are the main conditions one needs to adhere to:
- The purchase must be made either one year before the sale/transfer or two years after the sale/transfer of the property/asset.
- For construction of a new house – time line is bit relaxed. You may construct a new house over 3-year period but not more to avail the tax benefit.
It is important to note that this tax exemption benefit will be available only if you are investing in house property in India itself. If you invest abroad, this benefit will not be available and you will end up paying the capital gains tax.
In case you are unable to purchase or construct during the specified time period stated above, you may deposit the amount in a bank (usually a PSU bank) as per Capital Gains Account Scheme. This has to be done before the date of tax filing or six months from the date of sale, whichever is earlier.
The extension of capital gains reinvestment to two house properties will provide a big boost to real estate. In a country like India where house properties are still an essential part of family estate planning, this move is certainly a boon.