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Capital Gain Tax Exemption under section 54 F

JERRY JOHN (62 Points)

07 January 2021

Dear friends,

Request your advice on the following tax query under section 54F

As you know, in order to avoid capital gain tax u/s 54F, he can invest the entire sale proceeds to:

1. buy a house property within one year before the sale or

2. construct a house within 3 years after the sale

In this case, the seller has already started construction of the house one year before the date of sale of the original property which will be completed within 5 months.

Can the assessee avail of tax exemption under section 54 F on the construction of the house despite the fact that construction activities of the house have started before the sale of the original asset?

Regards,

Jerry

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2 Replies

Smit Shah (524 Points)
Replied 07 January 2021

No exemption can only be taken if construction started after the date of sale.

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Krishna Chaudhary (Accountant) (4531 Points)
Replied 07 January 2021

The exemption under section 54F is not available under the following circumstances –

1. The assessee already owns more than one residential house on the date of transfer of the long term capital assets.

2. The assessee purchases additional residential house (other than the new residential house purchased/ constructed to claim an exemption under section 54F is claimed) within a period of one year from the date of transfer of the long term capital asset.

3. The assessee constructs additional residential house (other than the new residential house purchased/ constructed to claim an exemption under section 54F is claimed) within a period of three years from the date of transfer of the long term capital asset.

In the aforesaid three cases, the amount of capital gains arising from the transfer of the original asset, which was not charged to tax, will be deemed to be the income by way of long term capital gains of the year in which new house is transferred or another residential house (other than the new house) whose income is taxable under the head ” Income From House Property” is purchased or constructed, as the case may be.

It is important that, in the cases above, the income from the residential house (other than the one owned on the date of transfer of the long term capital asset) is chargeable under the head ‘Income from house property’.