Tax exemption for LTCG from selling of Stocks/MF

Hey Jyothis, welcome to the forum! Here’s a clear explanation on LTCG exemption with respect to buying a residential property:

LTCG Tax on Stocks/MF

• Long Term Capital Gains (LTCG) from sale of listed equity shares or equity-oriented mutual funds over ₹1 lakh in a financial year are taxable at 10% without indexation under Section 112A.

• So if your LTCG is ₹2 lakhs, the first ₹1 lakh exemption applies here directly. You pay 10% tax on the remaining ₹1 lakh LTCG.

Section 54 Exemption

• Section 54 provides exemption on LTCG arising from sale of a long-term capital asset (other than equity shares and equity-oriented MF), if the capital gains are invested in a residential house property (either new or under construction).

• This means Section 54 exemption does NOT apply to LTCG from sale of equity shares or equity mutual funds.

Your Scenario:

• LTCG from sale of stocks/MFs = ₹2 lakhs.

• You get ₹1 lakh exemption as per Section 112A.

• You pay 10% tax on remaining ₹1 lakh LTCG.

• Buying an apartment under project construction does NOT give exemption under Section 54 on LTCG from stocks/MF.

If the LTCG was from sale of other assets (like land, building, etc.):

• You can claim exemption under Section 54 by investing the gains in a residential house property (including under-construction property) within specified timelines.

• But this doesn’t apply for equity shares or equity mutual funds LTCG.

Summary:

• LTCG from stocks/MFs: ₹1 lakh exempt under Section 112A, balance taxed at 10%.

• No Section 54 exemption for LTCG on equity shares/MF.

• Section 54 applies only for LTCG from other capital assets (e.g. property, land).