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Exemption u/s 54

N.N.RAJAN (PROFESSIONAL) (243 Points)

16 February 2010

Dear Members,

Please clarify me reg. the following.

A person has sold a house property now. He already has purchased some other house within one year before under housing loan from a bank and paying EMI.

1. Now can he claim exemption u/s 54 based on the cost of the house property?

2. If the date of purchase of property under the housing loan is more than one year before the date of sale, then can he claim exemption by fully repaying the housing loan ( fore closure) out of the proceeds of the present sale?

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4 Replies

CA Saurabh Shukla (Accounts Executive) (223 Points)
Replied 16 February 2010

yes, u can claim exemption U/s 54 evenif u have taken loan from bank.

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Amir (Learner) (4016 Points)
Replied 16 February 2010

Dear Nagarajan Sir,

In first case exemption will be allowed u/s 54

But in the second case exemption will not be allowed since the house was acquired prior to 1 year before the date of sale..It has been held in the case of R.L. Sood that "Agreement to purchase is taken as the date of purchase for the purposes of Sec 54. And mere repayment out of the proceeds will not serve the purpose...

But if u have contructed the house & the fact that the commencement of construction preceeds the date of sale of House property then Exemption will be allowed if the construction is completed within 3 years from the date of sale of the House. This hasbeen held in a jusgement of H.K. Kapoor.

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CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 16 February 2010

affirmative to both ur questions...!!!

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Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 16 February 2010

Allowable as per case below:

S. 54 provides that if an assessee has LTCG on transfer of a residential house and he purchases or constructs a residential house within the specified period then the amount appropriated towards the new house shall be deducted from the LTCG. The assessee sold a house and used the sale proceeds to buy commercial property. Subsequently (but within the specified period) he borrowed funds and purchased a new house. The AO denied deduction u/s 54 on the ground that the new house had been purchased out of borrowed funds and not out of the consideration received for the old house. On appeal, the Tribunal and High Court upheld the claim on the ground that s. 54 merely required the purchase of the new house to be within the specified period. The source of funds for the purchase was irrelevant.

CIT vs. Dr. P. S. Pasricha (Bombay High Court)

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