Investment

Published: Mar 28, 2023
Updated: Mar 28, 2023

Three Ways to Utilize Exemptions Under Section 54 When Buying a New Home

When buying a new home, it is important to understand the tax implications and exemptions available under Section 54 of the Income Tax Act. Section 54 provides exemptions on capital gains tax when an individual sells a property and purchases a new one. In this article, we will discuss three ways to utilize the exemptions available under Section 54 while purchasing a new home.

1.Invest in a Residential Property

Under Section 54, an individual can claim an exemption on the capital gains tax if they invest in a residential property. The exemption is applicable if the new property is purchased either one year before the sale of the old property or two years after the sale of the old property. Alternatively, the exemption can also be claimed if the individual constructs a new house within three years from the date of sale of the old property. It is important to note that the exemption is available only for one residential property.

2.Purchase a Joint Property

Another way to utilize the exemptions available under Section 54 is to purchase a joint property. Section 54 provides an exemption on the capital gains tax if the sale proceeds of the old property are invested in the purchase or construction of a new property jointly with another person. The exemption is available if the new property is held jointly for a minimum of five years.

3.Use the Exemption on Multiple Properties

Section 54 provides an exemption on the capital gains tax if the sale proceeds of the old property are invested in multiple properties. However, the exemption is limited to the extent of the investment made in the new properties. For instance, if an individual invests the entire sale proceeds in two properties, then the exemption will be limited to the extent of the investment made in both properties.

Avail them while purchasing a new home

Utilizing the exemptions available under Section 54 can help individuals save a significant amount of capital gains tax when purchasing a new home. By investing in a residential property, purchasing a joint property, or using the exemption on multiple properties, individuals can make the most of the tax benefits available under Section 54. It is advisable to consult a tax expert to understand the provisions of Section 54 in detail and to make informed decisions while purchasing a new home