Zerodha co-founder and chief Nithin Kamath on Friday pitched for adding an additional tax exemption on capital gains under Section 54F in the upcoming Budget.
Section 54F of the Income Tax Act provides for an exemption on long-term capital gains, arising from the transfer of any capital asset other than a residential house. This exemption is available if the net proceeds from the transfer is invested in purchasing or constructing a residential house.
Kamath said, including tax exemption for investments in startups under this section along with investments in residential property can make startup investing mainstream.
\”One of the biggest challenges the Indian economy faces is structural unemployment among youth. Growth will always be uneven unless this improves. Part of the solution is to do everything to encourage entrepreneurs, even in small towns and villages in India. VCs will never go to these areas. Which means other wealthy people are the best hope,\” he said.
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\”One of the things I hope the Budget addresses is section 54F. Including investments in startups along with investments in residential property can make startup investing mainstream. Even though some people may misuse the law, the potential upside is infinitely greater and worth the minor risk,\” Kamath noted.
For an investor to get eligible under Section 54F, he or she must purchase one residential house within one year before or two years after the date of transfer of the original asset.
If the entire proceeds are invested in the new residential house, the entire capital gain is exempted. If only a part of the net consideration is invested, the exemption is proportionate.
This section aims to promote the reinvestment of capital gains into residential property, thereby providing tax benefits to taxpayers and encouraging investment in housing.
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