Claiming exemption under sec54F of the Income tax Act

This query is : Resolved

Gopalarathnam Muralidharan (Querist)
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24 January 2024 Dear sir

1) One client has land and building purchased in 1974 and 1.4.2001 value as given by SRO adopted. Falls under Sec 54F

2) The landover enters into Joint venture agreement in 2022 whereby total 5 units to be constructed, out of which 3 will go to owner and 2 will go to developer

3) 3 units for land owner got constructed by Developer for a cost of Rs7,80,00,000

4) Developer sold 2 units as UDS of vacant land during oct 2023

5) Consideration for landowner being

a) Monetary consideration Rs ,40,00,000
b) Sale of 2 UDS given to Dev Rs 1,00,00,000

Total Rs 1,40,00,000
6) Investment made

3 units involving construction cost Rs 7,80,00,000

7) Apparently the full value consideration invested in new building hence it would be exempt

8) In Sec 54 , if the entire sale consideration is invested in purchase/construction of one residential house within a period of 1 year before or 2 years after purchase and for construction 3 years.

9) My question is, since the client got 3 units as a consideration will he be hit by one residential house that one can buy/construct under sec54F

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 Based on the details provided, it seems you are dealing with a scenario where your client is looking to claim exemption under Section 54F of the Income Tax Act, which relates to capital gains on the sale of a residential property and investment in a new residential property. Here are the key points and considerations based on your query:

1. **Nature of Transaction and Eligibility under Sec 54F:**
- Your client sold a property and is looking to invest the proceeds in constructing units received from a joint venture agreement.
- Section 54F provides an exemption if the entire sale consideration (not just capital gains) is invested in the purchase or construction of one residential house.

2. **Investment in New Residential Units:**
- The client received 3 units from the developer as part of the joint venture agreement.
- The construction cost incurred by the developer for these 3 units is Rs 7,80,00,000.

3. **Exemption under Sec 54F:**
- To claim exemption under Section 54F, the entire sale consideration (Rs 1,40,00,000 in your case) must be invested in the purchase or construction of one residential house.
- Since the client received 3 units, each unit can potentially be considered as a residential house for the purpose of claiming exemption under Section 54F, provided the entire sale consideration is invested in these units' construction.

4. **Application of Sec 54F Requirements:**
- The investment must be made within specified timelines: 1 year before the sale or 2 years after the sale for purchase, and 3 years for construction.
- In your case, the construction appears to be completed within the permissible time frame, assuming it was started within 1 year before the sale or within 3 years after the sale.

5. **Considerations for Claiming Exemption:**
- Ensure that all conditions under Section 54F are met, including the nature of investment (purchase or construction), timelines, and that the units constructed are used for residential purposes.
- The client should maintain proper documentation, including proof of investment and construction costs, for claiming the exemption during tax assessments.

Given these points, the client should consult with a tax advisor or a qualified chartered accountant to ensure compliance with all provisions of Section 54F and to properly structure the investment to maximize tax benefits while adhering to legal requirements. Each case can vary based on specific details, and professional advice is crucial for accurate interpretation and application of tax laws.