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capital gain deduction u/s 54

22 July 2019

I sold residential house property on which the LTCG is Rs. 337480.

My query is whether i can get deduction u/s 54 in A.Y. 19-20 if i buy plot of land to construct a house within time limit of 3 yrs and purchase the plot before 31st july 2019 of rs 337480.

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5 Replies

Kamal Verma (Financial advisor) (582 Points)
Replied 22 July 2019

For claiming deduction u/s 54F, you must invest whole sale proceeds in residential house property till the date of filling of return for concerned FY, if not invested in residential house property till the date of filling of return, you must open a LTCG account in any nationalised bank with the sale proceeds, in this case you may invest the amount within three years.

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bhushan dronkar (48 Points)
Replied 22 July 2019

but purchase cost of land is not considered as construction cost of house property for claiming deduction us 54.

Suresh Thiyagarajan (Student) (3986 Points)
Replied 23 July 2019

1. According to sec 54 exemption will be available if the consideration from the sale of residential property is used to purchase another residential property within a period of 1 year before or 2 years after or in case of construction of residential property within a period of 3 years from the date of sale.
2. In case of construction of a residential property, the same shall be deposited in Capital Gains Accounts Scheme (CGAS) within the due date of filing the return of income.
3. The question concerning is whether the purchase of land will be considered as qualified exemption u/s 54..?
Refer case law CIT v. Sardarmal Kothari (2008) 302 ITR 286
According to the above case, the department had not contended the investments made in the land while giving a verdict in the above case.
4. Another important point for consideration is if the residential property is purchased that also includes land as a part of the value of the property and looking from that angle investment made in the land will also qualify for exemption u/s 54. But the land should only be used for the construction of a residential property and it cannot be kept idle as a mere investment.
5. Hence in your case LTCG of Rs. 3,37,480 can be deposited in CGAS within due date for filing the ROI and investments made in the land will qualify for deductions u/s 54.
Please correct me if the above interpretation has an alternative view.

Kamal Verma (Financial advisor) (582 Points)
Replied 24 July 2019

Originally posted by : Suresh Thiyagarajan
	1. According to sec 54 exemption will be available if the consideration from the sale of residential property is used to purchase another residential property within a period of 1 year before or 2 years after or in case of construction of residential property within a period of 3 years from the date of sale. 2. In case of construction of a residential property, the same shall be deposited in Capital Gains Accounts Scheme (CGAS) within the due date of filing the return of income. 3. The question concerning is whether the purchase of land will be considered as qualified exemption u/s 54..? Refer case law CIT v. Sardarmal Kothari (2008) 302 ITR 286 According to the above case, the department had not contended the investments made in the land while giving a verdict in the above case. 4. Another important point for consideration is if the residential property is purchased that also includes land as a part of the value of the property and looking from that angle investment made in the land will also qualify for exemption u/s 54. But the land should only be used for the construction of a residential property and it cannot be kept idle as a mere investment. 5. Hence in your case LTCG of Rs. 3,37,480 can be deposited in CGAS within due date for filing the ROI and investments made in the land will qualify for deductions u/s 54. Please correct me if the above interpretation has an alternative view.

Sale proceeds (not LTCG) of long term capital asset will be invested in residential house or deposited in LTCG account if not invested withing prescribed time i.e. untill the date of filling of return, for the purpose of claiming deduction u/s 54F.

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