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Exemption u/s 54f

Jay Bodha (Employed) (139 Points)

11 January 2012

Dear All,

Please clarify the whether in the following case (Mr. X) who does not own any house as on the date of transfer of capital gain, will be eligible to claim exemption u/s 54F

Mr.X has sold a land for Rs 2 cr, on 12/10/2011 on which LTCG is of Rs 1cr and out of the consideration received he purchased a house property worth Rs 2 cr on 31/11/2011

and

further he has purchased a flat of Rs 1.5 cr on 18/12/2011.

Please reply whether Mr X will be eligible to claim exemption u/s 54F for both the houses or not?

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6 Replies

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 11 January 2012

In this case if Mr.X holds one residential house property on the date of transfer then in that case exemption u/s 54F will not be available as Mr.X has purchased 2 house properties after transfer date.

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C.A. Jignesh N. Mehta (C.A.) (1030 Points)
Replied 11 January 2012

The assessee must neither purchase within two years after or construct within three years after the day of transfer, any other residential house other than the one in which reinvestment is made nor transfer the new asset within 3 years from the date of its acquisition/construction, otherwise the amount of gains earlier exempted shall be deemed to be LTCG in the year of such transfer.
Since Mr X violated the condition, there will be no Exemption u/s 54F. He will be liable to pay tax on LTCG of Rs. 1 Cr.

Jay Bodha (Employed) (139 Points)
Replied 12 January 2012

so, Mr Jignesh as per your interpretation it leads to conclusion that purchase value of only one house shall be available for the exemption and the assessee cannot invest the sales consideration in more than one house to avail exemption.

Please clearify.

C.A. Jignesh N. Mehta (C.A.) (1030 Points)
Replied 12 January 2012

Here are my interpretations of the Exemption u/s 54F

1. Asset Sold - Any Capital Asset not being a residential house

2. Benefit to - Individual, HUF

3. Asset is to be Long Term Capital Asset

4. Reinvest the Sale Consideration - In Residential House, within 1 year before, or 2 years after the date of transfer (if purchased), or 3 years after the date of transfer (if constructed).

5. Amount of Reinvestment - If the cost of the specified asset is not less than Net Consideration of the original asset, the whole of the gains. If the cost of the specified asset is less than the Net Consideration, the proportionate amount of the gains.

6. The assessee must not own more than one residential house other than the new house on the date of the transfer of the original asset.

7. The assessee must neither purchase within two years after or construct within three years after the day of transfer, any other residential house other than the one in which reinvestment is made nor transfer the new asset within 3 years from the date of its acquisition/construction, otherwise the amount of gains earlier exempted shall be deemed to be LTCG in the year of such transfer.

Interpretation

Hence Mr X had one Residential House at time of sale of asset. He can now buy one more residential house to get exemption u/s 54F.

If Mr X after purchase of the second house sells that house within 3 years OR purchases new house in 2 years OR Constructs new house in 3 years THEN the capital gain so saved will be taxed in that year.

Jay Bodha (Employed) (139 Points)
Replied 13 January 2012

Mr Jignesh, the example and the clearification and example as quoted by you and as given in the books show whre the assessee has one house at the time of sale of the capital asset but in my case the assesseee does not own even one house so in such cases will he be eligible to claim 54F by investing in two residential houses or not

Please clarify

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C.A. Jignesh N. Mehta (C.A.) (1030 Points)
Replied 13 January 2012

No he can get benefit of exemption only if he purchases one new house after sale of asset i.e. if he purchases another house then no benefit.

Yes This benefit u/s 54F will be available if both houses are together , then it shall be treated as one house. There are case laws to help on that.

Option Yes , I suggest that purchase one new house (1) first, then sale old asset and then buy new house (2), but again the problem will be quantum of 54F which will be cost of New House (2).

So take the suitable option as answer to your practical problem.