Capital gain exemption

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badrinarayanan (Querist)
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22 February 2017 Hi,
I have got two house, one in chennai and another in Bombay. I proposed to sell the chennai house and invest the capital gain amount in purchasing another new house property. I also decided to sell the Bombay house property and buy a new house property in Bombay for capital gain in respect of the same. Please advice with relevant section whether two new house property can be purchased for two separate sale to avoid capital gain tax?

Regards
S.Badri

Kriti Gupta

Kriti Gupta (Expert)
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22 February 2017 For claiming Capital Gain Exemption, Only One house property has to be purchased for sale of one house property. For the other sale, another property purchase to be claimed. Place of property does not matter.

badrinarayanan

badrinarayanan (Querist)
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23 February 2017 Mr.X proposed to sell one land and one residential house property and going to purchase one new residential house property for the capital gain exemption. Under which section he is eligible to claim capital gain exemption? Is it Section 54 or 54F? State the provision also.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 Mr. X can potentially claim capital gain exemption under either Section 54 or Section 54F of the Income Tax Act, depending on the nature of the properties sold and purchased. Here’s a brief overview of both sections and their provisions:

### Section 54:

- **Applicability**: Section 54 applies when the capital gains arise from the sale of a residential house property (not a plot of land).

- **Conditions**:
1. The capital gains must arise from the transfer of a residential house property.
2. The taxpayer should purchase another residential house property either:
- Within 1 year before the date of transfer of the original house, or
- Within 2 years after the date of transfer of the original house, or
- Construct a residential house property within 3 years after the date of transfer of the original house.

- **Exemption Amount**: The amount of capital gains utilized for purchasing or constructing the new residential property is exempt from capital gains tax.

### Section 54F:

- **Applicability**: Section 54F applies when the capital gains arise from the transfer of any asset other than a residential house property (e.g., sale of land, commercial property, etc.).

- **Conditions**:
1. The taxpayer should not own more than one residential house property, other than the new one, on the date of transfer of the original asset.
2. The taxpayer should purchase one residential house property within 1 year before the date of transfer of the original asset or within 2 years after that date. Alternatively, the taxpayer should construct one residential house property within 3 years from the date of transfer of the original asset.
3. The new house property should not be transferred within three years from the date of its acquisition or construction.

- **Exemption Amount**: If the entire net consideration (i.e., sale proceeds minus cost of transfer) is invested in the new residential house property, the entire capital gain is exempt. If only a part of the net consideration is invested, then the exemption is proportionate to the invested amount.

### Choosing Between Section 54 and 54F:

- **Nature of Assets**: If Mr. X is selling a residential house property, he should consider Section 54.
- **If Selling Other Assets**: If Mr. X is selling land or any asset other than a residential house property, he should consider Section 54F.

### Conclusion:

To determine the correct section for claiming capital gain exemption, Mr. X needs to identify whether he is selling a residential house property or another type of asset. Based on that, he can proceed with either Section 54 or Section 54F, ensuring compliance with the respective conditions regarding the purchase or construction of the new residential house property within the specified time frames. It’s advisable to consult with a tax advisor or chartered accountant for personalized advice based on Mr. X’s specific situation and to ensure proper compliance with tax laws.