21 February 2015
Dear experts One of my client had sold a residencial property and purchased a land and constructed a house . Can we claim exemption in sec 54 f .
21 February 2015
No. Your client can't get benefit of sec. 54F of the IT Act.
Condition is capital gain arising on transfer of any long term capital asset other than residential house then 54f is attracted subject to fulfilling other conditions.
How can your client take benefit of sec. 54f when sold asset is a residential property!
22 February 2015
Please advise me in which section the exemption can be claimed . He had sold a log term asset (house) and purchased a land . He has constructed a hose in that land . Please advise in which section th e exemption can be claimed .
18 July 2024
In the scenario described, where your client has sold a residential property and used the proceeds to purchase land and construct a new house, the relevant section for claiming exemption under the Income Tax Act, 1961 is indeed Section 54F. Here’s how Section 54F works and how your client can claim exemption:
### Section 54F Exemption Overview
1. **Conditions for Exemption:** - Section 54F provides exemption from capital gains tax if the following conditions are satisfied: - The asset sold must be a long-term capital asset, in this case, the residential property. - The taxpayer does not own more than one residential house, other than the new house being constructed, on the date of transfer of the original asset. - Within one year before or two years after the date of transfer of the original asset, the taxpayer purchases a residential house or within three years constructs a residential house. - The new house should be situated in India.
2. **Amount of Exemption:** - If the entire sale proceeds (not just the capital gains) are invested in the new residential house or towards the construction of the new house, the entire capital gains arising from the sale of the original residential property will be exempt from tax. - If only a portion of the sale proceeds is invested, then the exemption is proportionate to the amount invested.
### Application in Your Client's Case
1. **Sale of Residential Property:** - Your client has sold a residential property, which qualifies as a long-term capital asset.
2. **Purchase of Land and Construction of House:** - Your client has used the sale proceeds to purchase land and construct a new house on that land.
3. **Exemption under Section 54F:** - Since your client has reinvested the entire sale proceeds into purchasing land and constructing a new house, he can claim exemption under Section 54F. - The exemption will cover the capital gains arising from the sale of the original residential property.
### Steps for Claiming Exemption
1. **Calculate Capital Gains:** Compute the capital gains arising from the sale of the original residential property.
2. **Investment in New House:** Ensure that the entire amount of sale proceeds is utilized for purchasing the land and constructing the new house within the specified time limits mentioned in Section 54F.
3. **File Tax Return:** In the income tax return for the relevant assessment year, declare the sale of the original property, compute the capital gains, and claim exemption under Section 54F.
4. **Documentary Requirements:** Maintain proper documentation of the sale and purchase transactions, including sale deed, purchase agreement, construction details, and evidence of utilization of sale proceeds.
### Conclusion
Section 54F provides a beneficial provision for taxpayers who sell a residential property and invest the proceeds in a new residential house. Your client, by reinvesting the entire sale proceeds in purchasing land and constructing a new house, meets the conditions required for claiming exemption under this section. Ensure all conditions are met and documentation is in order to effectively claim the exemption. For precise guidance tailored to your client's situation, consulting a tax advisor or chartered accountant is recommended.
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