Tax on LTCG from Equity Sale and Reinvestment in Property - FY 2024-25 Budget Changes

Income Tax
1

Hello,

I’m trying to get some clarity on the tax implications of a recent transaction, especially with the latest budget changes for FY 2024-25. Any guidance would be a great help.

Here’s my situation:

  • I sold some long-term equity shares in the third week of July 2024.
  • The entire proceeds from these gains were used to purchase a property.
  • My CA has advised that a 12.5% LTCG tax is applicable on these gains, regardless of whether the money was reinvested in property.
  • No other property on my name, apart from the one that’s purchased.

My understanding was that long-term capital gains from the sale of equity are exempt from tax if the amount is reinvested into a residential property.

Could someone please confirm if my CA’s advice is correct, or if there is a way to claim an exemption on these gains by reinvesting them into property?

Thank you in advance for your insights!

2

[quote=“rishi5354, post:1, topic:9535”]
I’m trying to get some clarity on the tax implications of a recent transaction, especially with the latest budget changes for FY 2024-25. Any guidance would be a great help.

Here’s my situation:

  • I sold some long-term equity shares in the third week of July 2024.
  • The entire proceeds from these gains were used to purchase a property.
  • My CA has advised that a 12.5% LTCG tax is applicable on these gains, regardless of whether the money was reinvested in property.
  • No other property on my name, apart from the one that’s purchased.

My understanding was that long-term capital gains from the sale of equity are exempt from tax if the amount is reinvested into a residential property.

Could someone please confirm if my CA’s advice is correct, or if there is a way to claim an exemption on these gains by reinvesting them into property?
[/quote] Hey there! Great question, and I can totally relate to the confusion you’re facing—it’s something I stumbled into myself a couple of years back. So here’s the deal: the exemption you’re thinking of (under Section 54 of the Income Tax Act) applies only when you sell a residential property and reinvest the capital gains into another residential property. In your case, since you sold long-term equity shares, the tax treatment falls under Section 112A. As per the latest budget changes for FY 2024-25, the government introduced a 12.5% LTCG tax on equity shares (above the exemption threshold), and reinvestment in property unfortunately does not shield you from this tax. So, your CA is right—using the sale proceeds from equity for buying a house does not give you the same exemption that you would get if you had sold a property instead.

I’ll share a little personal story to make it less dry. Back in 2022, I sold some mutual funds and thought I was being clever by using the proceeds to book a flat. I assumed, just like you, that because I was putting the money back into real estate, I’d be spared from paying capital gains tax. Imagine my shock when my CA politely burst my bubble over coffee and explained that Section 54 doesn’t apply to shares or mutual funds. I ended up paying the LTCG tax anyway, and it was a tough pill to swallow. But the silver lining was that I learned early that reinvestment exemptions are very specific—they apply only if the original asset sold was a residential property. My takeaway? Always double-check which section of the law covers your transaction before planning tax savings.

3

Thanks for your reply - I have also reached out to multiple other folks, and read more. I think section 54F applies here.

Detailed Section Can be read at - https://incometaxindia.gov.in/Pages/section-wise-statutes.aspx

4

You are right. Section 54F is applicable here .
The only difference between section 54 & 54F is that , under section 54 , if you sale residendial property , the CAPITAL GAIN amount need to be invested for claiming exemption . Whereas under section 54F , on sale of shares or any property other than residential , you need to invest SALE PROCEEDS in order to get exemption .

The exemption under section 54F is availiable on sale of equity shares in proportion of investment of Sale proceeds.