Section 54F exemption

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mohammed uzair (Querist)
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11 October 2016 If a person has sold an urban agricultural land, and wants to apply the sale proceeds in reconstruction of an already constructed house owned by him, as the already constructed house is around 100 years old...and now wants to construct a building to generate a source of income...by selling various flats....would 54F exemption be denied in such case....? Thank you...

Amol S Joglekar

Amol S Joglekar (Expert)
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12 October 2016 54F exemption is available for newly constructed property. It is not available for renovation of existing property.

mohammed uzair

mohammed uzair (Querist)
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12 October 2016 yes it is...but if the house is made ground zero...the new construction is started from scratch...

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Anand

Anand (Expert)
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13 October 2016 i think that the purpose of this exemption is to enable an assessee who has sold a capital asset to invest it in the purchase or construction of a residential house.
What you are suggesting is that the proceeds will be used to reconstruct a building containing many flats as a business venture to be sold later.
So you will have litigation at two separate issues
a) whether the investment is in a Residential House
b) as Amol pointed out, whether the asset is a new construction/purchase.
If you are open to litigation and the possibility of penalty being levied then you may consider this appraoch

Amol S Joglekar

Amol S Joglekar (Expert)
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14 October 2016 54F aims at ONE residential house. From the view point of generating source of income (may be RENT or SALE), you seem to be constructing more than one residential houses out of the sale proceeds of the urban agricultural land. Please read section 54F from the link provided below. it says
Provided that nothing contained in 54F(1) shall apply where—
the assessee constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property
http://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx

(you need to be careful while constructing the new asset so as to claim exemption u/s54F)

mohammed uzair

mohammed uzair (Querist)
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15 October 2016 Thanks for ur replies... I came to the conclusion after reading the act and going through some case studies that: A person who owns a house(2 floors constructed) in which he is living and an urban agricultural land.. sells his Urban Agricultural land.

mohammed uzair

mohammed uzair (Querist)
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15 October 2016 Sorry in continuation.... He invests the total consideration in reconstructing his own house in which he was living... He dismantles the whole house and newly constructs say 4 floors.. now the pros and cons for him are 1. he cannot construct commercial shops..otherwise the exemption for that part will stand withdrawn. 2. He will get exemption for 2 floors which were newly constructed, because his old house already had 2 floors constructed..and for those two floors the new construction is like reshaping and remodeling them... 3. After the Construction is completed he cannot sell any part of the building for 3 more years ie the lock in period..otherwise it will attract STCG for that part... that's my interpretation... Is it correct.?

Amol S Joglekar

Amol S Joglekar (Expert)
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16 October 2016 01. No bar in constructing commercial / shopping etc. It w ill NOT affect 54F
02.The exemption is for one residential unit......now one unit may consist of 2 floors or even more....Like say for example Ambani is having a residential unit of 27 floors.
03. The contention is correct. He should not sell.....but renting option is available for source of income....subject to however the conditions of 54F

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