Home > Income Tax > Capital Gain > Capital Gain Exemption from Sale of Residential House Property – Sec 54

Capital Gain Exemption from Sale of Residential House Property – Sec 54

U.C Date : 25 Feb 2015

Eligible Assessee – Individual and HUF

Eligible Capital Gain – Capital gain arising from transfer of long term capital asset being buildings or lands attached thereto and being a residential house the income of which is taxable under head “Income from 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

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

a) amount of capital gain
b) cost of residential house so purchased or constructed

Lock in period – 3 years

If such new residential house property is transferred within 3 years of its purchase or construction, then its cost of acquisition shall be reduced by the amount of the capital gains exempted earlier for the purpose of computing capital gains on such transfer.

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

Case Laws

If provisional booking of flat is done, assessee has provisional letter of allotment and there is no agreement to sell then also it is treated as acquisition of residential house property and therefore exemption under this section is allowed. CIT vs Ram Gopal (2015 Delhi HC)

Exemption under section 54 is also available in respect of more than one residential house property. There is no condition that exemption is allowed only in respect of purchase or construction of only one property. CIT vs Syed Ali Ali (2013) (AP)

In case where the payment is made by co-owner to get the full ownership, it is considered as purchase and thus eligible for exemption. CIT vs V. Aravinda Reddy (1979) (SC)

Purchase of a portion is eligible for exemption. Eg – If an assessee purchases 20% share in a house property. CIT vs Chandanben Maganlal (2000) 245 ITR (Guj.)

Mere construction by way of extension of old existing house is not eligible for exemption. CIT vs V. Pradeep Kumar (2006) (Mad)

Bare Act for Sec 54

Bare Act for Sec 54

[(1)] Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset  being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (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], then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,

(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

[(2) The amount of the capital gain 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 not so utilised shall be charged under section 45 as the 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 such amount in accordance with the scheme aforesaid.

Leave a Reply

Your email address will not be published. Required fields are marked *

Get updates and weekly newsletter in your email. Join more than 10,000 subscribers !