Example: Jorden bought a house in Aug 2005 for Rs 50 lakh, and sold the same in FY 2016-17 at Rs 1.8 crore. This property has been held for more than 3 years, this would be termed as a long-term capital asset.
Using the indexed cost of acquisition, the adjusted cost of the house is Rs 1.17 crore with a net capital gain is Rs 63, 00,000.
Long-term capital gains are taxed at 20%. For a net capital gain of Rs 63, 00,000, the total tax outgo will be Rs 12,97,800.
This is a big amount to be paid as Capital Gain and to avoid the same we can take benefit of exemptions provided by the Income Tax Act on capital gains when profit from the sale by reinvesting into buying another asset.
Section 54: Exemption on Sale of House Property
Section 54F: Exemption on capital gains on the sale of any asset other than a house property
Section 54EC: Exemption on Sale of House Property on Reinvesting in specific bonds
Let’s understand each section in detail