What are the exemptions under section 54 and 54F
EXEMPTIONS U/s 54 AND 54F
There has been substantial
increase in the sale of properties resulting in capital gain to the land owners
giving the land to the developers and entering into Joint Development
Agreement, receiving more than one flat from the builder and yet avoiding
capital gains tax. When a person is selling a capital asset in order to book profit
he has to pay either short-term or long-term capital gain on the difference
between the net sale consideration and the actual cost of acquisition. The
Income-tax Act, 1961 has also specified various exemptions that are available
on long-term capital gains.
Exemption U/s 54 – Exemption to capital gains arising from
transfer of a residential house property (being building or land appurtenant
thereto), the income of which is chargeable under the head Income from house
property.
Exemption U/s 54F – Exemption to capital gains arising from
transfer of a long-term capital asset other than a residential house property (for
instance, it may be a plot of land, commercial house property, gold, shares etc
but not a residential house property).
The table below explains the provisions of
section 54 and 54F in detail:
|
No. |
Particulars |
Section 54 |
Section 54F |
|
1. |
Asset
transferred |
Residential
House property |
Transfer
of a long term capital Asset not being a residential house |
|
2. |
Type
of Capital gain |
Long term |
|
|
3. |
Investment
should be made in |
Residential House Property |
|
|
4. |
How
to invest |
Purchase or construction |
|
|
5. |
Time
limit for construction |
3 years from the date of transfer |
|
|
6. |
Time
limit for purchase |
1 year before transfer or 2 years
after transfer |
|
|
7. |
Amount
of exemption |
Amount of investment. |
Amount
of investment * Capital gains / Net
sale consideration |
|
9. |
If
the amount is not invested before the date of filing return, what should be
done? |
Deposit
in a Capital Gain Deposit Scheme in any specified Bank and enclose the proof
of such deposit
with the return of income. (See Note 1) |
|
|
10. |
What
is the consequence if the full deposit is not utilised? |
The
amount will be taxable in the year of default. (Either if there is withdrawal
and the amount is not utilized or at the end of three years of transfer and
there is no purchase or construction) |
|
|
11. |
Can
the person hold any other house property on the date of transfer other than
the exempted
asset (due to purchase one year before the date of transfer)? |
Yes.
The person can hold any number of house property on the date of transfer. |
No.
The person can hold only one house property other than the new exempted
asset, otherwise he cannot claim exemption u/s 54F |
|
12. |
Can
the person purchase a new house property within 1 year from the date of
transfer or constructs a new house property from 3 years from date of
transfer other than the exempted asset? |
Yes |
No.
If he does so, he will lose the exemption and he will be taxed in the year in
which new asset is purchased or
constructed for the exempted amount as long term capital gain. |
|
13. |
What
is the consequence if the exempted house property is transferred within three
years of acquisition? |
The
amount of capital gain exempted from tax on the original asset will be
reduced from the cost of acquisition of the new asset |
The
amount of capital gain which is claimed exempted will be taxed as such in
the year in which transfer takes place. |
|
14. |
Nature
of capital gain in case of the above default. |
Short
term Capital gain |
Long
term Capital gain. |
Conclusion :
There may be
some doubts as to whether the new property should be purchased in the name of
the assessee himself? It is necessary and obligatory to have investment made in
residential house in the name of the transferor only and not in name of any
other person. However, if the property is registered in the name of the spouse
for the purpose of security etc, the assessee would be the deemed owner of the
property and exemption is available in such a case.
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