Section 54 & 54F of Income Tax Act-Capital Gains Exemption

Hello readers, Today I will discuss Section 54 & section 54F exemptions in simplified manner as Income tax due dates approaching –

Section 54 & section 54F of Income tax Act –deals with exemption from tax on LTCG only if used for purchase or construction of a house with in specified limits.

There are similarities between the sections – let us discuss-

Section 54- Available for long-term capital gains on the sale of a residential house

• Exemption available only to Individual or HUF.
• Now keep in mind seller should purchase a residential house – either 1 year before date of sale/2 years after the date of sale-In case the seller is constructing a house –time limit is 3years from date of sale.
• One more important point new residential house should be in India and also w.e.f A.Y 2020-21 ,capital gain exemption available for purchase of two residential houses –subject to capital gain not exceeding Rs 2 crores and available once in lifetime of seller.
• Also, even if one condition not fulfilled, seller cannot avail exemption.
• Further, new house is sold with in 3 years from date of purchase then exemption claimed earlier shall be taxable in year of sale of new house property.

Section 54F- Available for long-term capital gains on the sale of any long term capital asset

• Now keep in mind seller should purchase a residential house – either 1 year before date of sale/2 years after the date of sale-In case the seller is constructing a house –time limit is 3years from date of sale.
• Exemption will be available if entire sale consideration is invested.Also keep in mind if part of sale consideration is invested, exemption shall be allowed
• In case, the taxpayer has more than one residential house on date of transfer, exemption will not be available.

To sum up- both sections are quite similar as exemption available on purchase of residential house but in case of section 54F you cannot own more than one residential house at time of transfer ,also exemption available only if entire net sale proceeds are invested.

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