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Can deduction u/s 54 be availed

rajiv (business) (52 Points)

15 June 2016

A land in a joint name owned by 2 individuals A& B has come under aquisition by Metro. the compensation has been received in January 2016.

I would like to know whether long term capital gains exemption under sections of 54 of Income Tax can be availed if

1. invested in any other type of property or has it to specifically be a Residential House property

2. Individual A already owns a House that has been gifted by her husband and also a land. can she still avail benefit u/s 54

TIA

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3 Replies

CA Harshal Totla (Chartered Accountant) (2229 Points)
Replied 15 June 2016

Mr.Rajiv i would like to correct you that in your case you cannot claim exemption u/s 54 because the capital asset transferred was land and not residential house property. The appropriate course of action would be to invest the proceeds u/s 54F but as you said one of the co-owner already owns one residential house property so it violates one of the requirement of section 54F, hence the other option left to you is to invest in specified government bonds of NHAI or REC u/s 54EC and claim exemption from kong term capital gains occurred to you.
Note that the investment made in the long term specified asset, out of capital gains arising from the transfer of one or more original asset or assets are transferred and in the subsequent financial year shall not exceed Rs. 50 Lakhs.

Thanks

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Senu Reddy (ca final) (291 Points)
Replied 15 June 2016

Section 54 exemption is available only if it involves purchase or construction of residential house property.

Condition of Exemption Under Section 54

This exemption is only for the individual/HUF.
The capital gain should be long term. This exemption is not available for short term capital gains.
You should buy the new residential property.
You must buy new property within 2 years of the transfer of old property. If you are constructing a new house, the exemption is relaxed for one more year i. e. 3 years.
You can also buy a new property before one year of the transfer of old property.
In case of compulsory acquisition, the period of acquisition or construction will be determined from the date of receipt of compensation (whether original or additional).
The exemption is available for only one residential house property. This is a new rule and effective from the assessment year 2015-16.
The exemption is available if a house is purchased within India.

rajiv (business) (52 Points)
Replied 15 June 2016

Mr Harshal ,

to avail capital gain exemption by the other co owner B who has a small piece of land left over from the aquired land , in what all type of properties can she invest to avail exemption or exemption is avaliable only if invested in residential unit . or exemption will not be applicable as land was compulsary aquired .