Sec 54F: a hack that can save lakhs in taxes when you buy a house
This article shows how to save capital gains taxes under income tax Section 54F when you sell other assets to raise money to buy your first or second house.
This article shows how to save capital gains taxes under income tax Section 54F when you sell other assets to raise money to buy your first or second house.
If you ever decide that you will sell your mutual funds to buy a house you will be in for a pleasant surprise. Section 54F of the income tax act says that long term capital gains, on selling mutual funds for example, are tax free if you use that money to buy a house.
Introduced in 1983, Section 54F of the Income Tax act, as sourced from the Income Tax website, allows us to save capital gains tax if we sell mutual funds to buy a house.
The basic premise of this tax exemption is very simple:
We will now break down and analyse each subsection of 54F to understand the terms and conditions implied.
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Related:
How is tax calculated on selling shares/MFs and how do to do tax harvesting?
If your new house costs more the mutual funds you sold, you can save lakhs in capital gains tax
If the cost of the new asset is X and the sale proceeds from original asset sales is Y, then
(explanation follows below)
If another house is constructed/purchases within the same period (1 year for purchase / 3 year for construction) which is eligible for āincome from house propertyā i.e. given on rent, then the tax benefit received on the new asset construction is reversed and has to be paid in the previous financial year. This rule effectively means that:
(explanation follows below)
If the new house is sold within three years of purchase / construction, the capital gains tax becomes payable in the financial year preceding the purchase of the house.
We have a large list of FAQs on this topic here: Frequently asked questions on Section 54F: the complete guide.
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This post titled Sec 54F: a hack that can save lakhs in taxes when you buy a house first appeared on 10 Jul 2022 at https://arthgyaan.com