17 March 2015
Hello All My client have sold a residential property and purchased one residential property in the curent year. I want to sell the property which I purchased in lieu of sale. My question is whether I can claim exemption u/s 54 in the current assessment year? What is the time period for which I have to keep it. Pl advise. It is urgent. Regards Sanjay
18 March 2015
Sir Thanks for reply. But my question is if my client sell it off the purchased property after current financial year then what would be the consequences? Regards Sanjay
18 March 2015
Hello Sanjay, If u have already taken exemption in last year than you have to reverse the same in this year. And if your client has not filled the return of last year than it is advisable not to take exemptin so that no need of reversal in this year.
21 July 2024
Yes, your client can still claim exemption under Section 54 of the Income Tax Act even if they have taken a loan from a bank for the purchase of the new residential property. Here’s how it works:
### Understanding Section 54:
Section 54 provides an exemption from long-term capital gains tax if the gains are reinvested in the purchase or construction of a residential house property. Here are the key points relevant to your client's situation:
1. **Reinvestment Requirement**: To claim exemption under Section 54, the taxpayer must: - Sell a residential property and earn long-term capital gains from the sale. - Invest the capital gains in the purchase or construction of another residential property. - The new property must be purchased within 1 year before or 2 years after the sale of the original property, or constructed within 3 years after the sale.
2. **Loan for Purchase**: If your client has taken a loan from a bank or financial institution to finance the purchase of the new residential property, it does not affect their eligibility to claim exemption under Section 54. The exemption is based on the investment of the capital gains, not on the source of funds used for the purchase.
3. **Amount of Exemption**: The amount of exemption under Section 54 is proportionate to the amount of capital gains reinvested in the new property. If the entire amount of capital gains is reinvested, the entire capital gains are exempted from tax. If only a part of the gains is reinvested, the exemption is proportionate to the amount reinvested.
4. **Loan Repayment and Tax Implications**: - While the loan itself is not a factor in claiming exemption under Section 54, the interest paid on the loan is eligible for tax deduction under Section 24 of the Income Tax Act, subject to certain conditions. - The exemption under Section 54 is specifically for the capital gains portion, and it does not cover deductions for interest paid on the loan.
### Practical Example:
Suppose your client sells a residential property and realizes a long-term capital gain of ₹50 lakhs. They use ₹40 lakhs from the sale proceeds and take a bank loan of ₹10 lakhs to purchase a new residential property.
- They can claim exemption under Section 54 on the entire ₹50 lakhs of capital gains because they have reinvested ₹50 lakhs (₹40 lakhs from sale proceeds + ₹10 lakhs from the loan) in the new residential property.
### Conclusion:
Your client can indeed claim exemption under Section 54 for the long-term capital gains tax if they have reinvested the capital gains in the purchase or construction of a new residential property, even if they have taken a loan from a bank for part of the purchase. It’s important to ensure that all conditions under Section 54 are met and to maintain proper documentation of the reinvestment for tax purposes.
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