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Section 54F-Capital gain on transfer of certain. capital assets not to be charged in case of investment in residential house

         Any Gain arising to an individual or HUF from the sale of any Long Term Asset other than Residential Property shall be exempt in full, if the entire net sales consideration is invested in

  1. Purchase of one residential house within 1 year before or 2 years after the date of transfer of such an asset or in
  2. Construction of 1 Residential House within 3 years after the date of such transfer

In case the whole sale consideration is not invested and only a part of the sale consideration is invested, exemption shall be allowed proportionately i.e.

Amount Exempt = Capital Gain   X   (Amount Invested /Net Sale Consideration)

Exemption under Section 54F not available in following cases

The above exemption would not be available if any of the below mentioned conditions is satisfied:-

  1. The assessee does not own more than 1 Residential House Property on the date of transfer of such asset exclusive of the one he has bought for claiming exemption under section 54F.
  2. The assessee purchases any residential house, other than the new asset, within a period of 1 year of the transfer of the old asset.
  3. The assessee constructs any residential house, other than the new asset, within a period of 3 years after the date of the old asset.

Explanation. —For the purposes of this section,—

  1. “long-term capital asset” means a capital asset which is not a short-term capital asset;
  2. “net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

SRS Interpretation

Query 1. Can the assessee buy another residential house if they already have one residential house?

Answer- yes, They can buy another residential house claiming exemption u/s 54F even if they have one residential house.

Query 2 Does this means the assessee can claim Section 54F only once, if they have already owned a residential house.

Answer- No, Section 54F can be claimed for multiple years LTCG for another residential house (Only one) when they already have one .

Query 3. If the assessee has not owned any residential house and has buy one residential house taking benefit of section 54F, Can they buy another residential house in next FY.

Answer- There is a time limit which is prescribed in Section 54F. Till the lapse of time (i.e . In case of buying a residential house -within a period of 1 year of the transfer of the old asset or in case of construction- within a period of 3 years after the date of the old asset.) they cannot buy another residential house .

one solution of this is to deposit capital gain amount in LTCG account and wait for period to be over subject to time limit prescribed for LTCG deposit account.

Query 4.  Any relevant judgment in relation section 54F for utilizing multiple year LTCG for one residential house.

Answer-Please refer to below judgment

ACIT v. Mohinder Kumar Jain (2017) 62 ITR 176 (Delhi) ( Trib.)

  • On appeal before the Tribunal, it was held that the new asset was under construction and cannot be said residential house owned by the assessee.
  • The Tribunal also held that, there was no bar in the u/s. 54F of the Act for claiming deduction more than once for the same house property (new property), if the cost of the new property is within the capital gain that arose to the assessee.

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