Capital gain saving on sale of house property

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AVTAR SINGH

AVTAR SINGH (Querist)
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25 January 2013 we sold our house and purchase 2 flats. can we consider both flats to save capital gain tax ?

kunal

kunal (Expert)
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25 January 2013 it is possible only if 2 new flats purchased were adjacent to each other. you may have to go to court

you can go for 54EC exemption

AVTAR SINGH

AVTAR SINGH (Querist)
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27 January 2013 Sir plz clear me. In section 54 it is mention anywhere that flat should be adjacent or we cant purchased 2 house for consume all the capital gain received on sale of house.

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AVTAR SINGH

AVTAR SINGH (Querist)
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29 January 2013 Sir plz clear me. In section 54 it is mention anywhere that flat should be adjacent or we cant purchased 2 house for consume all the capital gain received on sale of house.

Asha Kanta Sharma

Asha Kanta Sharma

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18 July 2024 Under Section 54 of the Income Tax Act, 1961, you can claim an exemption from capital gains tax if you sell a residential house and reinvest the sale proceeds in another residential property within India. Here are the key points to consider regarding your query:

1. **Purchase of Two Flats:**
- Section 54 allows you to invest the entire amount of capital gains arising from the sale of one residential house property into one new residential property to claim exemption from capital gains tax.
- There is no provision under Section 54 that explicitly allows you to purchase two residential properties to claim exemption from the entire capital gains tax. The exemption is generally limited to the purchase or construction of one residential property.

2. **Conditions for Exemption (Section 54):**
- You can claim exemption under Section 54 if the capital gains are invested:
- **Purchase of New Property:** Within 1 year before or 2 years after the date of transfer of the original house, or
- **Construction of New Property:** Within 3 years after the date of transfer of the original house.
- The new property must be situated in India and must be used for residential purposes.

3. **Adjacent Property Requirement:**
- There is no specific requirement in Section 54 that the new residential property should be adjacent to the original property or that only one property can be purchased.
- However, the exemption is generally interpreted to apply to the purchase or construction of one residential property to claim full exemption from capital gains tax.

4. **Investing in Two Flats:**
- If you purchase two flats using the capital gains from the sale of your house, the exemption under Section 54 would typically apply to only one of the flats.
- The investment in the second flat would not qualify for exemption under Section 54 unless specific conditions are met separately for each property.

5. **Tax Planning:**
- To optimize tax benefits, consider consulting with a tax advisor to explore other options such as Section 54F (which applies to investment in a residential house other than the one sold) or investing in bonds under Section 54EC if applicable.

### Conclusion:
While you can purchase two flats with the sale proceeds of your house, the exemption under Section 54 would generally apply to only one residential property. It's advisable to carefully plan your investments to maximize tax benefits and ensure compliance with the provisions of the Income Tax Act. Consulting with a tax advisor would be beneficial to explore all available options based on your specific circumstances.