Exemptions under Long Term Capital Gains Tax

Capital gain from any asset other than shares and mutual funds, if it is held at least for three years or more is called Long Term Capital Gain( LTCG) otherwise it is called Short Term Capital Gain(STCG). LTCG will be taxed at a rate 10% without indexation and 20% with indexation. The option lies with assessee. But STCG will be taxed as per tax slab applicable to that person.


 Shares/ Mutual funds

If one hold shares or mutual funds at least for one year or more, it is  treated under LTCG or else it is STCG. LTCG from shares or equity oriented mutual fund (at least 65% in equity) is exempted from tax but in case of STCG, it will be taxed at a flat rate of 15%. LTCG from non-equity oriented fund will be taxed at a rate 10% without indexation and 20% with indexation. But STCG will be taxed as per tax slab applicable to that person.

Exemption under 54

a. The taxpayer should be individual/HUF. 

b. Capital gain arises on the transfer of residential house property. 

c. The purchase of the new residential property should be one year before or two years after the sale of the original asset or the construction should be within three years of sale of the original asset.

d. If only a part of the capital gain is reinvested, only pro-rata exemption will be available.

e. If the capital gain or any part thereof has not been used for purchase or construction of a new house before the due date, it can be  deposited in a special deposit account under the Capital Gains Account Scheme (CGAS).

Exemption under 54B(Agricultural land)

Exemption on Capital gain on transfer of land used for agricultural purpose will be available, if the gain is be used in the similar in similar way as section 54.

Exemption under 54 EC (REC/NHAI Bonds)    

a. Need to invest in specified bonds within six months from the date of transfer.

b. Rural Electrical Corporation (REC) and National Highway Authority of India (NHAI) issue these bonds.

c. The interest rate is 6% per annum and there is a lock in of 3 years.

d. The maximum gains are capped at Rs. 50 lakhs in a financial year.

e. Interests earned from these bonds are fully taxable.

Exemption under 54 F (Gain on any asset other than residential property)

a. The taxpayer should be individual/HUF. 

b. He should not have more than one residential house property on the date of transfer. 

c. If the net sale consideration is utilized in purchasing or constructing a residential house property.

d. If he purchases more than one residential house property, he cannot claim exemption under section 54F. 

e. Need to purchase within a period of one year before or two year after the date of transfer but in case of construction it need to be purchase within three years from the date of transfer.

Exemptions under recent Tax proposal

a. Capital gain arises on the transfer of residential house property.

b. The sales consideration will be used for subscription in equity of a manufacturing SME companies for purchase of new plants and machinery. 


Don’t ever try to avoid tax responsibilities as it may lead to heavy penalties.   Always consult a trust worthy chartered accountant or adviser approved by SEBI for your tax related updates. They will guide you properly in adhering Tax rules and getting maximum benefits of relevant exemptions.

Last modified on Friday, 16 August 2013 13:03

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

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