Tax Query: Does the investment in stock market count for capital gain exemption?

I bought a house in September 2015 in Delhi. My wife and I took a joint home loan and are paying the EMIs from a joint bank account. I am planning to sell the house this year and invest the money in the stock market. Will this investment help save capital gains tax? Also, do I need to disclose the sale in the ITR form?

Any residential house property held for more than 24 months is considered to be a long-term capital asset. When a long-term capital asset is sold, the resulting figure is long-term capital gains (LTCG) or loss (LTCL). The gain earned or loss suffered will be divided in the ratio of ownership among the co-owners. 

In the given case, any gain or loss will be divided on the basis of your and your wife’s ownership. LTCG or LTCL will be calculated by deducting the indexed cost of acquisition/purchase and improvement from your net sale proceeds (sale after adjusting any brokerage or other expenses directly connected to sale).

The purchase cost and cost of the improvement will be indexed using the Cost Inflation Index (CII) notified by the tax department for the year of purchase (CII for FY2015-16 is 254) and the year of sale (CII prescribed for FY 2019-20 is 289). In the case of LTCG, a tax of 20% (plus applicable surcharge and cess) will be applicable. If you incur any loss, the same can be adjusted with any other LTCG or carried forward to future years. 

You can invest the money earned out of such sale in the eligible assets and claim a capital gain exemption. Such eligible assets are – 

  1. A new residential house property situated in India (Section 54)
  2. Specified bonds issued by NHAI or by Rural Electrification Corporation Limited or any other bond notified by the Central Government in this behalf (Section 54EC)
  3. Equity shares of an eligible startup (Section 54GB)

As you want to invest the money in the stock market, the same investment will not be eligible for any capital gain exemption. 

Additionally, you will have to disclose the sale transaction in yours as well as your wife’s income tax return in the proportion of the ownership, under the Capital Gain Schedule of the ITR form, in the year of sale.

For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in

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