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Clarification of Sec 54 of Capital Gain

arunvelani (Part Time Practice cum Full Time Job) (83 Points)

23 February 2011

Pl somebody tel me that if assess sold residenital Flat and invest fund in new resident flat.

How he can claim exemp u./s 54? is he can claim exmp. on the bases of allotment letter or it is necessary that purchase agreeement is required?

if new Resi. Flat will sale with in 3 year then what?

and if sale of proceed of this new flat is invest in new resid flat then is he eligible of Sec 54 continue or eventhought he has to pay LTCG Tax?

Pl help me in this regards

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4 Replies

abhishek (CA FINAL) (274 Points)
Replied 23 February 2011

Hi Arun,

Nice doubts buddy! Given below are the solutions

First , on re investment of capital gains in new House property, to claim exemption u/s 54, purchase of HP should be along with possession of the HP, registration of document is not necessary, POSSESSION IS IMPORTANT.So if you can prove to the AO that you have the possession of the NEW HP purchased, you can claim the exemption.

Next , if the new house property is sold within 3 years the amount exempted earlier will be reduced from cost of acquisition of that house property and the assessee will be liable to pay STCG and NOT LTCG (within 3 yrs is less than 3 yrs hence the HP is short term capital asset)

Finally, you ask that if the sale proceed on sale of HP within 3 yrs is again re invested in New residential house then is sec 54 exemption available ? answer is YES SEC 54 EXEMPTION IS AVAILABLE. And therefore if he avails exemption he will not have to pay any tax on the sale proceed,

Hope this helps to clarify your doubts!

GOD BLESS!

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vijayaggarwal (CA. IN PRACTICE) (89 Points)
Replied 23 February 2011

first two answers of abhishek is coorect however as far as availability of exemption u/s 54 is concerned on reinvestment, it will not available. since exemption u/s 54 is available on reinvestment of proceeds from sale of Long term capital asset & the new asset sold with in 3 years is a short term capital asset.

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