Understanding capital gains tax exemptions for ESOP share sales

I made long-term capital gains of Rs. 80 lakhs on selling shares allotted under ESOP in June 2024. Can I put ₹50 lakh in a capital gains bond to claim an exemption under Section 54EC in FY 2024-25 and buy a house for ₹30 lakh during the financial year 25-26 to claim an exemption under Section 54 to save capital gain tax on the entire Rs? 80 lakh?

Please note that the exemption under Section 54EC by investing the capital gains in capital gains bonds of specified financial institutions is available only for long-term capital gains arising from land or buildings and not for any other assets.

Secondly, as you mentioned, you can claim exemption from tax on long-term capital gains arising from the sale of any asset other than a residential house by investing in a residential house under Section 54F, not Section 54.

Clarifications on Capital Gains Exemptions

To claim an exemption under Section 54F, you must invest the sale proceeds, not the capital gains you mentioned. So, for claiming exemption for long-term capital gains of Rs. 80 lakh, you will have to invest the full sale consideration received on the sale of ESOP shares for buying or constructing a residential house within the prescribed period. The residential house has to be bought within two years from the date of sale of the shares. If it is under construction, it must be completed within three years, and possession must be obtained.

Please note that if the money is not used to acquire a residential house before the due date for filing the Income Tax Return (ITR), 31 July 2025, you will have to deposit the balance amount in a Capital Gains Account in a scheduled bank. The money deposited in the Capital Gains Account can be used to make payments for the house within the prescribed time period.

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Balwant Jain is a tax and investments expert and can be reached on jainbalwant@gmail.com and @jainbalwant on his X handle.

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