How to avoid capital gains tax on jewelry sale?
What's the story
India's Income Tax Act, specifically Section 54F, provides a unique tax exemption opportunity for individuals selling jewelry. This provision allows taxpayers to avoid capital gains tax (at a 20% rate) if the proceeds from a jewelry sale, are used to purchase residential property. However, this exemption applies only if the jewelry has been held for over three years, and is subject to long-term capital gain (LTCG) tax.
Provisions
The rules to be followed by taxpayers
There are specific rules to follow when claiming this tax exemption. The property must be purchased either one year before or two years after, the sale of the jewelry. Furthermore, the property must be built within three years of sale of the old asset. "Taxpayers must be mindful of the fact that they only purchase a residential property and not just any property," states CA Chirag Chauhan of Mumbai-based Chauhan & Co.
Exemption limits
Can't claim exemption if you have more than one property
CA Paras Gangwal, Founder of ThetaVega Capital, highlighted a crucial limitation to this tax exemption. Taxpayers can't claim this exemption if they have more than one residential property, he stated. Additionally, Gangwal noted that there is a cap on the exemption claim, set at ₹10 crore. This limit was brought in Budget 2023, prior to which there was no such restriction on the amount that could be claimed as an exemption.