Sec 54 F exemption

This query is : Resolved

J. Sivaraman (Querist)
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23 August 2007 During PYE 31.03.04 an individual had two types of LTCG. One by selling equity sharea and another by redemption of Mutual Fund ( Debt Fund ) Units. He had invested 100% of the proceeds on sale of equity shares in a new residential house and has offered the LTCG arising out of redemption of MF Units for tax.

The ITO wants to allow only proportionate deduction under 54 F by duly combining the proceeds of sale of shares and redemption of MF Units.

It is apparent to me that the ITO is wrong in holding this view.

Can I get expert's views on the stand of the ITO.

Thanks.

madhusudan

madhusudan (Expert)
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24 August 2007 Dear Sir,
Kindly provide me the data, regarding the above issue

J. Sivaraman

J. Sivaraman (Querist)
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25 August 2007 AY 2004/05. Resident Individual.

Sale value of shares Rs. 2,91,338. Cost Rs. 28,000. LTCG = 2,63,338. Invested in Flat Rs. 2,87,637. Therefore 54F exemption claimed for 100 % of Rs. 2,87,637.

Redemption value of MF Units. Rs. 3,62,065. Cost Rs. 2,39,783. LTCG = Rs. 1,22,282. CG Tax paid @ 10 % Rs. 12,228.

ITO wants to allow proportionate exemption U/s 54 F (b) taking the denominator for the formula ( Shares + MF Units realisation )as Rs. 6,53,403.

ITO Formula for working exemption is

2,87,637 * 3,85,620 / 6,53,403 = 1,69,755.

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J. Sivaraman

J. Sivaraman (Querist)
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29 August 2007 54 F of IT act Query is yet to be resolved.

J. Sivaraman

J. Sivaraman (Querist)
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31 August 2007 Could I get considered opinion from experts for the query on 54 F exemption.

KAAPIL

KAAPIL (Expert)
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31 October 2007 Partial Exemption under 54 F is allowed only if the cost of the new residential house is less than the net consideration realised by the assessee from sale of the LTCA, the LTCG would be exempt in proportion which the cost of the new residential house bears to the net consideration realised by the assessee from sale of LTCA.
Thus if both your shares and MF are LTCA. You will get partial exemption.