Budget 2024: Zerodha’s Nitin Kamath wants govt to add additional exemption to capital gains tax

Zerodha co-founder and chief Nitin Kamath on Friday proposed adding additional tax exemption on capital gains under Section 54F in the upcoming budget.

Section 54F of the Income Tax Act provides for exemption on long-term capital gains, arising out of transfer of any capital asset other than residential house. This exemption is available if the net proceeds of the transfer are invested in the purchase or construction of a residential house.

Investment in residential property including tax exemption for investment in startups under this section can make startup investment mainstream, Kamath said.

“The biggest challenge facing the Indian economy is structural unemployment among the youth. Until this is rectified, growth will always be uneven. Part of the solution is to do everything to encourage entrepreneurship, even in small towns and villages in India. VCs will never go away. For these areas that means other wealthy people are the best hope,” he said.

“I hope one of the things the Budget addresses is Section 54F. Including investment in residential property along with investment in startups can make startup investment mainstream. Even though some people may abuse the law, the potential upside is infinitely greater and worth the small risk.” Kamath noted.

For an investor to be eligible under Section 54F, he must purchase a residential property within one year or within two years of the date of transfer of the original asset.

If the entire income is invested in a new residential house, the entire capital gain is exempted. If only part of the net consideration is invested, the exemption is proportionate.

The objective of this section is to promote reinvestment of capital gains in residential property, thereby providing tax benefits to taxpayers and encouraging investment in housing.