If I sell a house, and intend to get a new house, I get the benefit in the form of reduction in my taxable gains on the sum I put in the new house. This is called Section 54 exemption. I need to go the following route:
- If I buy a new house, it should be within 1 year before or 2 years after the sale of house. Instead, If I construct a new house, I should do it within 3 years after the sale of house.
- I should continue to hold the new house for a period of 3 years. If I don’t hold so, what benefit I got in form of exemption, is reversed, and I pay tax on such amount in year I sell the new house.
- Since I have the period of 2 or 3 years post sale, I need to tell the Government my intention to save and invest for the house before I file my return for the year in which I sell. So before I file my return , I should put the amount I need to put in the new house in a specified bank account under Government scheme called ‘Capital Gains Account Scheme’. Then whenever I have to pay for the new house, I withdraw from such account and pay for the purchase or construction. I should remember to spend timely on the house out of this account, otherwise at end of 2 years (in case of purchase) or 3 years (in case of sale), unutilized amount out of my gains in this scheme, will be added to my income as capital gains, for I didn’t use it for the purpose I got exemption on.