Capital gains – when and to what extent exempt from tax u/s 54 & 54F
Section 54 provides exemption to capital gains arising from transfer of a residential house property (being building or land appurtenant thereto), the income of which is chargeable under the head Income from house property.
Section 54F provides exemption to capital gains arising from transfer of a long-term capital asset other than a residential house property (for instance, it may be a plot of land, commercial house property, gold, shares etc but not a residential house property).
The table below explains the provisions of section 54 and 54F in detail:
|Particulars||U/s 54||U/s 54F|
|Who can claim exemption?||Individual/HUF|
|Which asset is eligible for exemption?||Long-term residential house property||Long-term capital asset (other than residential house property) provided on the date of transfer, taxpayer does not own >1 residential house property (except the new asset stated below)|
|Which asset to be acquired?||Only one residential house property in India||Only one residential house property in India|
|What is the time limit to acquire the new asset?||For Purchase: within 1 year before transfer or within 2 years after transferFor Construction: within 3 years from transfer|
|Is deposit scheme applicable?||Yes (explained below)|
|From which date the time limit shall be determined?||From transfer of original asset,But in case of compulsory acquisition, from the date of receipt of compensation (original/additional)|
|How much is exempt?||Investment in new asset or capital gain, whichever is lower||Investment in new asset / Net sale consideration x capital gain (exemption not to exceed capital gain)|
|Is it possible to revoke exemption in subsequent year?||Yes if,new asset is transferred within 3 years of its acquisition||Yes if,- new asset is transferred within 3 years from its acquisition or- another residential house property is purchased within 2 years from transfer of original asset or- another residential house property is constructed within 3 years from transfer of original asset|
|What is the effect of revocation?||Taxable as short term capital gain. For computing capital gain on transfer of new asset, cost of acquisition = (original cost of acquisition – exemption availed u/s 54)||Taxable as long term capital gain. Amount of exemption availed earlier will be taxable in the year in which the assessee commits default (as above)|
Illustration: From the following information, find out capital gain chargeable to tax in the hands of X (u/s 54) and Y (u/s 54F):
|Residential house property at Delhi||Transfer of gold|
|Date of transfer||10/07/2013||10/05/2013|
|Date of purchase||06/10/1984||23/06/1982|
|Stamp duty value||20,00,000||–|
|Cost of acquisition||50,000||3,00,000|
|Expenses on transfer||10,000||55,000|
|Purchase of new asset at Noida||Purchase of new asset at Pune|
|Date of purchase||20/12/2013||12/05/2013|
|Cost of acquisition||2,00,000||27,00,000|
|Transfer of new asset at Noida||Transfer of new asset at Pune|
|Stamp duty value||3,20,000||–|
|Date of transfer||10/04/2014||29/06/2014|
|For AY 2014-15||For AY 2014-15|
|Sale consideration or stamp duty value, whichever is higher (as per 50C)||20,00,000||36,55,000|
|Less: Expenses on transfer||10,000||55,000|
|Net sale consideration||–||36,00,000|
|Less: Indexed cost of acquisition||3,75,600(Rs.50000 x 939 / 125)||25,84,404(Rs.300000 x 939 / 109)|
|Less: Exemption||2,00,000||7,61,697(2700000 / 3600000 x 1015596)|
|Long term capital gain||14,14,400||2,53,899|
|For AY 2015-16||For AY 2015-16|
|Sale consideration or stamp duty value, whichever is higher||3,20,000||30,00,000|
|Less: Cost of acquisition||0(200000 – 200000)||27,00,000|
|Short term capital gain (as property is sold within 3 years)||3,20,000||3,00,000|
|Long term capital gain (as Pune property is transferred within 3 years from its acquisition, exemption will be taken back)||–||7,61,697|
Scheme of deposit
1. If the new asset is not acquired up to the due date of submission of return of income, then the taxpayer will have to deposit the money in Capital Gain Deposit Account Scheme with a nationalized bank.
2. Exemption will be given on the basis of actual investment and the amount deposited in the deposit a/c.
3. The taxpayer can acquire the new asset by withdrawing from the deposit a/c.
4. But the new asset should be acquired within the time limit prescribed.
5. If the deposit a/c is not fully utilised for acquiring the new asset, the unutilized/proportionate amount (as applicable) will be chargeable to tax in the previous year in which the time limit for making investment in the new asset expires.
6. It will be taxable as short-term/long-term capital gain depending upon the original capital gain.
7. The unutilized amount can be withdrawn by the taxpayer after the expiry of the time limit.
8. If the taxpayer dies before expiry of time limit, the unutilized amount paid to the legal heirs is not taxable in the hands of recipient.
Other points to note
1. Date of commencement of construction is irrelevant. Construction may be commenced even before transfer of house. Construction need not be made by the assessee himself/herself, as it can be constructed by a third party for the assessee.
2. Allotment of flat under self-financing scheme of DDA (or similar scheme of co-op societies/other institutions) is treated as construction of house for this purpose.
3. It is necessary and obligatory to have investment made in residential house in the name of the transferor only and not in name of any other person. However, if the property is registered in the name of the spouse for the purpose of security etc, the assessee would be the deemed owner of the property and exemption is available in such a case.
4. Investment in residential house also includes cost incurred for making the house habitable.
5. Holding of legal title is not necessary. If the taxpayer pays full consideration or substantial portion of it (in terms of purchase agreement) within the period prescribed (even if the possession is handed over after the stipulated period or the sale deed is registered later on), the exemption is available.
6. Purchase of tenancy right in a building is not a purchase of house property and hence no exemption
7. Where on a plot of land only one room is constructed with bricks and mud and there is no amenities like boundary wall, kitchen, toilet etc, house cannot be considered as residential house
8. When two flats are sold in two different years and capital gain arising from sale of both flats is invested in one residential house, exemption is available u/s 54
9. Section 54 and 54F are independent provisions and the assessee can claim exemption under both sections for investment in same house
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