You can only buy one residential house with the capital gains you make, says the Finance Ministry, in the Budget.
If you have capital gains from selling a house, you can now invest in only one house in India to avoid capital gains (only the amount invested in the house is exempt).
If you have capital gains from any source (including bonds or such), you can again invest in the same “one house” restriction applies. What is exempt here is a part of the capital gain that is the proportion of the investment to the earlier sale consideration.
The deal, it seems, was that people were buying multiple houses to offset capital gains. If you sold a house with gains for Rs. 1 cr. and bought two houses worth Rs. 50 lakh each, you could have used the unclear language in the tax act to claim exemption on the full 1 cr.
Now, only one house can be purchased. If you have a truckload of capital gains, you’ve just got to buy one massive house. It can’t even be two houses next to each other (common in Mumbai and some parts of Delhi).
Secondly, you can’t buy a house outside India to claim the exemption. Apparently some people were doing this.
My view: I would of course have preferred if such gains could only be reinvested if it were your primary residence. And this offsetting ANY capital gains with a house purchase is just a silly thing; why not incentivize us similarly to buy stocks or ELSS funds? But my opinion apparently is not shared by the finance ministry.
This move won’t change things that much, but it does restrict such “rollovers” to one house per year for all such capital gains.