Synopsis: The capital gains tax silently reduces your profits on investments when you do not develop a good investment strategy. According to the Income Tax Act, there are several deductions that taxpayers can claim to lower their taxable amount. This guide explains 9 effective deductions that help salaried employees increase their ITR 2027 savings.
Most salaried individuals focus on earning returns but overlook the tax impact on those gains. Without proper planning, capital gains tax can significantly reduce your actual return. The Income Tax Act provides several deductions that taxpayers can claim to reduce or eliminate their tax liability. Knowing these alternatives prior to the ITR 2027 filing will significantly affect your overall tax liabilities.
Understanding Capital Gains
- The Long-Term Capital Gains (LTCG) tax is generally taxed at 12.5% for most assets.
- The Equity Exemption Limit allows investors to earn tax-free gains up to ₹1.25 lakh per year from their investments in listed shares and equity mutual funds.
- The tax system provides multiple exemption options when investors reinvest their capital gains into designated assets, which include property and bonds.
9 Capital Gains Tax Deductions You Should Know
1. Section 54 – Reinvest in a Residential Property: As per the Income Tax Act, an exemption is given in the case of a long-term capital gain accruing due to the transfer of residential house property and the assessee buys or builds another residential house within the stipulated period.
2. Section 54F – Invest Sale Proceeds in a Residential House: As per the Income Tax Act, an exemption can be provided when a long-term capital gain comes as a result of the transfer of any asset (except a residential house) and the assessee uses the net consideration to purchase a residential house within the required time.
3. Section 54GB – Investment in eligible startups: As per the Income Tax Act, an exemption will be provided if a capital gain is realized from the transfer of a residential property and the assessee invests the net consideration in equity shares of an eligible company that uses the amount to purchase new plant and machinery.
4. Section 54EE – Investment in Notified Fund: The exemption as per the Income Tax Act is applicable in case capital gains are invested in the units of a notified fund within 6 months, subject to a maximum limit of ₹50 lakh
5. Section 54EC – Investment in Specified Bonds: As per the Income Tax Act, an exemption is provided in case the capital gain is obtained as a result of selling land or a building and the assessee invests the capital gain in specified bonds within the 6 months.
6. Section 54B – Agricultural Land Reinvestment: As per the Income Tax Act, capital gain realized on the transfer of agricultural land should be subjected to exemption provided that the assessee buys another agricultural land within the time frame specified in the act.
7. Section 54D – Compulsory Acquisition of Industrial Property: As per the Income Tax Act, the exemption will be granted when the capital gain is a result of the compulsory acquisition of land/buildings used for industrial purposes and when the assessee reinvests in another industrial property.
8. Section 48(ii) – Cost of Acquisition and Improvement: As per the Income Tax Act, cost of acquisition and cost of improvement (with indexation, where applicable) are deductible as a part of computing capital gains.
9. Section 48(i) – Transfer Expenses Deduction: The Income Tax Act provides that expenditure that is incurred in relation to a transfer wholly and exclusively will be deductible, like brokerage, commission, and legal fees.
Comparison Table: Which Deduction Saves You More?
Also Read: 7 Major Tax Deductions to Reduce Capital Gains Tax for Individual Taxpayers in India
Final Thoughts
Capital gains tax requires both legal compliance and strategic planning. Salaried individuals can achieve substantial tax savings through the proper application of Income Tax Act deductions. Your ITR 2027 filing will reflect your smart investment decisions, which include property and bonds, as well as your loss management decisions.
Written By Ameet S
