Section 54F: Capital Gains Can Be Invested Multiple Times To Buy A New Residential House Property

Section 54F of the Income Tax Act helps to claim an exemption on capital gains which is earned from the sale of any property other than a residential house.  

Key Points To Remember

Introduction

As we know transfer of any immovable or capital asset as referred us Section 2(14)of IT act results into capital gain which leads to huge taxability to taxpayer as in remedy of such taxability there are certain exemptions has been provided under section 10(Exemption on Compulsory acquisition of agricultural Land situated within specified urban limits) & the head of Capital gains as below,

• Section 54: Capital gains on sale of residential house.
• Section 54B: Capital Gains on transfer of urban Agriculture land.
• Section 54D: Capital gains on transfer by way of compulsory acquisition of land & building of an industrial undertaking.
• Section 54EC: Capital gains not chargeable on investment in certain bonds i.e. NHAI & RECL.
• Section 54F: Capital Gains in case of investment in Residential house.

Let's understand one of the most attractive exemption available under the said head i.e. Section 54F.

Who can Claim Exemption Under Section 54F?

Only Individuals & HUF can claim the exemption us 54F.

Conditions To Be Fulfilled To Claim The Exemption

In order to claim the exemption, there must be a transfer of

• Long Term Capital Asset other than residential House or
• Plot of Land.

An Assessee should,

• Purchase One Residential House situated in India with in the period of 1 Year before or 2 Years after the date of transfer or
• Construct One residential house in India within 3 years from the date of transfer.

Note: However, if such investment is not made before the due date of filling of ITR then the amount must be deposit under the CGAS (Capital Gains Account scheme).

Point to be noted

• The net consideration in excess of Rs. 10 Cr would not be taken in to account for the purpose of deposit in CGAS.
• The Assessee Should not own more than 1 residential house on the date of transfer .
• The Assessee should not purchase any other residential house with in period of 2 years or construct any other residential house with in period of 3 years from the date of transfer of original asset.

What is a Capital Gains Account Scheme?

The Capital Gains Account Scheme (CGAS) is a provision under the Income Tax Act which provides taxpayer to deposit the unutilized capital gain in a designated account with authorized bank branches when they are unable to reinvest the proceeds immediately in purchasing or constructing a new property to avail of capital gains tax exemption.
 

Capital Gain Exemption Available Under Section 54F

• If Cost of new residential house => Net sale consideration of original asset then entire capital gain will exempt.
• If Cost of new residential house < Net sale consideration of original asset then only proportionate capital gains will exempt as under -

However, if cost of new residential house exceeds Rs. 10 crores then the amount exceeding Rs. 10 crores would not be taken into the account for exemption.

Let's understand the same with the help of below example

Consequences to be faced if conditions are not fulfilled after claiming the exemption

• If an Assessee purchase any other residential house or constructs any other residential house within period of 2/3 years as the case may be.

Then the entire capital gains exempt earlier under section 54F shall be deemed to be taxable as LTCG in the PY in which such act has been done.

• If an Assessee has transferred new house with in the period of 3 years from the date of purchase (Indexation will be available if sold after 2 years).

Then Capital gain arise on transfer of such new house & Capital gains exempted earlier will be taxable as LTCG in the hands of an assessee.