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Claim exemption under section 54f

08 January 2019

Dear Team,

I request query on the following point in regard to exemption under Sec.54 F

I made agreement with the builder to buy a flat for Rs. 40,00,000/- on 14/5/2014 and made payments in different dates. Registration of the flat was made on 28/03/2017 with final payment.

On 30/01/2017, I sold a land for Rs.30,00,000. In order to avoid long term capital gain tax from sale of land, can we consider the investment of Rs.40,00,000 in residential flat as the date of final registration of the same was made only after sale of land.

To simplify, Registration of new flat was made after receipt of sale proceeds of land. However payment for the flat was made in different installments from own source from 14/05/2014. Can I claim capital gain tax exemption under section 54f?

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7 Replies

Ruchika Somani (Coaching and Practice in Tax Audit Law.) (4429 Points)
Replied 08 January 2019

No, thats not possible until agreement is development agreement.

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JERRY JOHN (62 Points)
Replied 08 January 2019

can you elaborate please?

Ruchika Somani (Coaching and Practice in Tax Audit Law.) (4429 Points)
Replied 08 January 2019

development agreement is between builder and owner of land . in your case its not the situation hence you cannot state that you purchased house after last installment was paid and if you want to prove so then agreement shall contain such clause that title deed and possession transferred to you on the date of last installment payment date.

JERRY JOHN (62 Points)
Replied 08 January 2019

thanks for your instant response. Possession of the flat was taken and its registration was completed after sale of land.

In your response, I observe that I can therefore claim exemption u/s 54F against the purchase of flat from own source (not from sale proceeds of land) as possession of the flat was taken only after sale of land.

Ruchika Somani (Coaching and Practice in Tax Audit Law.) (4429 Points)
Replied 09 January 2019

Yes.

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54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall .......

here there are two considerations

1) whether the new asset purchase should be out of the amount received from the sale of plot?

ITAT MUMBAI : Dated.- July 4, 2018

YATIN PRAKASH TELANG VERSUS INCOME TAX OFFICER, WARD NO. 21 (3) (5) , MUMBAI Held that:- the assessee is entitled to exemption under section 54 even though for the construction of the new house, the amount that was received by way of sale of his old property as such was not utilized.

2)whether the purchase of residential premises was made one year before the sale of plot?

Depends on when the possession was taken to decide when the transfer was complete.

INCOME TAX OFFICER, WARD-23(3)(3), MUMBAI VERSUS SHRI SUSHIL KUMAR AGGARWAL, (Held that possession is important)

PUNJAB & HARYANA HIGH COURT Dated.- January 17, 2014 MRS. MADHU KAUL VERSUS COMMISSIONER OF INCOME TAX AND ANOTHER (held that date of agreement is date of transfer)