Exemption u/s 54f

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Shashikant (Querist)
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07 November 2011 IF I SALE A PROPERTY OF RS. 25,00,000/- AND PURCHASE A NEW PROPERTY OF RS.10,00,000/- AND IN NEXT YEAR I INCURRED 10,00,000/- MORE FOR RENOVATION OF THAT PROPERTY. THAN EXPENDITURE INCURRED ON RENOVATION IS ALLOWABLE AS DEDUCTION U/S 54 OR 54F OR ANY OTHER SECTION FOR CALCULATION OF LONG TERM CAPITAL GAIN.

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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07 November 2011 pl share details of year of sale of prop year of purchase of new prop
I assume that year of sale/purchase is same In that case u will get proportionate exemption u/s 54 in the year of sale/purchase . Now u can claim this renovation exp as part of cost of improvement when new asset is sold

CA MANOJ GUPTA
JODHPUR
09828510543

Shashikant

Shashikant (Querist)
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08 November 2011 DEAR SIR,

I AM TALK ABOUT EXEMPTION IN CURRENT YEAR FOR RENOVATION. WHAT ABOUT THE EXEMPTION U/S 54

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Shashikant

Shashikant (Querist)
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09 November 2011 Dear Sir,

It will not in same year but it is a long term capital gain.

Shashikant

Shashikant (Querist)
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09 November 2011 No reply

Please give the reply of my query.

Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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21 July 2024 Under Section 54F of the Income Tax Act, 1961, an individual can claim exemption from long-term capital gains tax if the gains are reinvested in the purchase or construction of a new residential house property. Let's address your specific scenario and the implications of renovation expenses:

### Scenario Overview:

1. **Sale and Purchase Details**:
- Sale Proceeds of Property: ₹25,00,000
- Purchase Cost of New Property: ₹10,00,000

2. **Renovation Expenses**:
- Renovation Expenses Incurred: ₹10,00,000 in the subsequent year after the purchase of the new property.

### Exemption under Section 54F:

1. **Eligibility Criteria**:
- Section 54F allows exemption if the long-term capital gains arising from the sale of any capital asset other than a residential house are reinvested in purchasing or constructing a new residential house property.
- The entire sale proceeds (₹25,00,000) should be reinvested to claim full exemption. However, since only ₹10,00,000 was reinvested in the new property, partial exemption may apply.

2. **Treatment of Renovation Expenses**:
- Renovation expenses incurred after the purchase of the new property are not considered for exemption under Section 54F.
- Section 54F focuses on the investment in the new residential property itself at the time of purchase or construction.
- Therefore, the ₹10,00,000 spent on renovation cannot be claimed as part of the exemption under Section 54F.

### Capital Gains Calculation:

1. **Capital Gains Calculation**:
- Capital Gains = Sale Proceeds - Indexed Cost of Acquisition - Indexed Cost of Improvement - Expenses Incurred on Transfer
- Since you are reinvesting only ₹10,00,000 in the new property, the balance amount of capital gains (₹15,00,000 in this case) would be taxable.

2. **Tax Implications**:
- The ₹10,00,000 spent on renovation can be added to the cost of acquisition or improvement of the property for the purpose of calculating capital gains. This will help reduce the taxable capital gains when you eventually sell the property in the future.

### Conclusion:

In conclusion, renovation expenses incurred on the new property after its purchase cannot be claimed for exemption under Section 54F. Section 54F focuses on the initial investment in the new residential property at the time of purchase or construction. However, the renovation expenses can be added to the cost of acquisition or improvement of the property for the purpose of calculating capital gains when the property is sold in the future, which would help in reducing the taxable capital gains at that time.