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

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)

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