Home > Income Tax > Capital Gain > Capital Gain Exemption on Investment in Residential Property – Sec 54F

Capital Gain Exemption on Investment in Residential Property – Sec 54F

U.C Date : 25 Feb 2015

 

Eligible Assessee – Individual and HUF

Eligible Capital Gain – Capital gain arising from transfer of long term capital asset not being a residential house property.

Condition for exemption – The assessee has

a) purchased a residential house within a period of 1 year before or 2 years after the date on which such transfer took place

or

b) constructed a residential house within a period 3 years after the date on which such transfer took place

Such residential house should be purchased or constructed within India (Applicable from assessment year 2015-16)

Conditions in which exemption is not available – Exemption under this section is not available if the assessee

(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or

(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset

If the assessee breaches (ii) or (iii) condition above then the capital gain exempted earlier shall be taxable as the Capital Gains in the year in which such condition is breached.

Amount of exemption – The amount of exemption will be lower of following

a) If cost of new asset is equal or more than the net consideration received for the original asset than whole of capital gain is exempted.
b) If cost of new asset is less than the net consideration received for the original asset then the amount of exemption will be  (Capital Gain*Cost of new asset)/Net Consideration

Net consideration of original asset – Sale price of capital asset – Expenditure incurred wholly and exclusively in connection with such transfer.

Lock in period – 3 years

If such new residential house property is transferred within 3 years of its purchase or construction, then the capital gain exempted earlier shall be taxable as the long term Capital Gains in the year in which such property is transferred.

Benefit of Capital Gains Account Scheme, 1988 is available under this section.

Case Laws

A house property is owned by assessee’s wife and income from such property is clubbed in hands of assessee under sections 22,27 and 64. Such property cannot be treated as owned by assessee for purpose of disallowing exemption under section 54F. CIT vs S. Krishna Kumar (2012 Chennai) , Maya Ajwani V. ITO (2015)

Exemption under section 54F is allowed even when the assessee purchased or constructed the residential house in name of minor son/daughter or spouse or jointly with these. CIT vs N. Ram Kumar (2012 Hyderabad) CIT vs Kamal Wahal (2013 Delhi)

Even if the construction of house has not fully completed but substantially completed, deduction under section 54F is available. CIT vs Sambandam (2012 Karnatka)

Exemption under section 54F is available whether the residential house is constructed on agriculture land or non-agriculture land. CIT vs Om prakash Goyal (2012 Jaipur)

it was held that assessee cannot be said to be sole owner of a joint property to deprive him benefit of section 54F to held that he is owner of more than one property, which is jointly owned by other co owner, because it cannot be sold without permission of others. ITO V. Rasiklal N. Satra 98 ITD 335 Mum

Bare Act for Sec 54F

Bare Act for Sec 54F

(1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date [constructed, a residential house] (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

[Provided that nothing contained in this sub-section shall apply where—

(a) the assessee,—

(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or

(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property” .]

Explanation.—For the purposes of this section,—

[***] “net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

(2) Where the assessee purchases, within the period of [two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.

(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred.]

[(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

(i) the amount by which—

(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1),

exceeds

(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,

shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires ; and

(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.

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