Section 54f is an effective weapon to save tax
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Investors in the stock market often come to a stage when they get an opportunity to convert their investment into big profits. Many times this profit is so much that a plan is made to buy a dream house. If you too are preparing to buy a house by selling your equity or shares, then this news is very useful for you. You can easily save huge tax on long term capital gains arising from selling shares. Section 54F of Income Tax is useful for this, but to take advantage of it, it is important to understand some technical details.
The most effective weapon to save tax
Often investors think that tax exemption is available only on selling the house and buying another house, but it is not so. According to tax expert Balwant Jain, Section 54F provides a special facility. Under this, if you sell any asset other than residential property (like shares, mutual funds or gold) and use that money to buy a house, then you can get exemption from long term capital gains tax. The catch here is that you have to invest the ‘net amount’ received from selling shares and not just the profits. If you invest the entire amount in the house, the entire tax will be waived off.
Time limit game for buying and building a house
To avail this discount, it is most important to take care of time. According to the law, you must purchase a ready-to-move house within two years of the date on which you sell the shares. Interestingly, even if you have purchased the house a year before selling the shares, you can still claim this exemption. At the same time, if you are not buying a house but are building it yourself or investing money in an under-construction project, then you get a little more time. In this situation, the construction of the house should be completed within three years from the date of sale of shares.
What benefit will I get if I have taken a home loan?
This question troubles many people that if they have taken a home loan to buy a house, will they get tax exemption on the money received from selling shares? The answer is, you will definitely get it. The law does not care whether you paid the money to buy the house from your own pocket or took a loan from the bank. What is important in the eyes of the law is that the price of the house should be more than or equal to the amount received from selling shares. You can also use the money earned from the stock market to pay home loan EMIs or repay part of the loan, provided the time limit is followed.
This condition is on more than one house
There is also a big condition hidden in this rule of saving tax, ignoring which can prove costly. You will get the benefit of Section 54F only if, excluding the new house, you do not own more than one residential house on the date of selling the shares. That means, if you already own two houses, you will not be able to save tax on buying a third house by selling the shares. However, the good news is that this discount is not just for one time. You can buy a house by selling shares in different years and claim exemption up to the limit of Rs 10 crore, provided that the number of properties in your name does not exceed the prescribed limit.