RELATED TO EXMPTION AVAILABLE UNDER SEC 54

This query is : Resolved

SIDDHARTH KOTHARI (Querist)
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16 May 2009 IF AN ASSESSEE HAVING TWO HOUSES AT DIFFERENT PLACE AND IF WANT TO SALE ONE THE HOUSE AND WANT TO PURCHASE THE ANOTHER HOUSE WITH IN SPECIFIED LIMITS.WILL HE GET EXEMPTION UNDER THE HEAD OF CAPITAL GAIN UNDER SECTION 54?

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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16 May 2009 Yes, you will get the exemption u/s 54 to the extent the capital gains is utilized. The provision u/s 54 is as under

54. (1)Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset , being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,

(i) if the amount of the capital gain is greater than the cost of the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

The provision does not bar that if somebody has more than one residential property,exemption u/s 54 shall not be applicable. In my opinion, the conditions envisaged in the provision are

* the property sold should be residential house property or land appurtenant to;
* Income out of such residential property should be assessable under "Income from house property";
* Property sold should be held for more than 36 months before it is sold;
* The property purchased should be residential property;
* The residential property should be purchased within one year before or within two years of sale
* In that case, the capital gains is exempted to the extent capital gains is invested.

If the property sold by you fulfills all the aforesaid conditions , you will be eligible for exemption u/s 54 of the I T Act.

taxindiaconnect

taxindiaconnect (Expert)
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16 May 2009 The wording of the section have left the reasons for doubt if the assessee has owned more then one houses. The section provides that capital gain from the transfer of long term capital assets ,being a residential house. The use of words “a” before residential house has led the scope of incorporating one residential House” in place of of “a’ residential house” The relevant portion of section Since the above 54 is reproduced.

(1)Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset , being buildings or lands appurtenant thereto, and being a residential house,

From above it is clear that the section provides for a residential house. However this position has been clarified by the CBDT Letter no 207/24/76-ITAII dated 25 March 1977 where in it has been made clear that an assessee holding more then one houses for the residential purpose of his own or his parants is eligible exemption of capital gains u/s 54.

For this reasons I ma in agreement with BC.

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