Amendments related to Capital Gain in Union Budget 2023-Simplified

1. Existing provisions of Section 54 & Section 54F

Section 54- Deduction on the capital gains arising from transfer of long term capital asset i.e. Residential House  if an assessee with in period of one year or two years after the date on which transfer took place purchased any residential property or with period of three years after that date constructed any residential property in India Irrespective of any threshold limit.

Example-  There is a LTCG amounting to Rs 20 crores then full exemption available u/s 54 if assessee purchased a new residential house amounting to Rs 20 crores or more .

Section 54F  – Deduction on the capital gains arising from transfer of long term capital asset except residential house  if an assessee with in period of one year or two years after the date on which transfer took place reinvested entire net consideration in any residential property .

Example –  Net Sale consideration amounting to Rs 50 crores and LTCG amounting to Rs 15 crores then entire capital gain of Rs 15 crores exempt if entire net sale consideration i.e Rs 50 crores invested in any residential property.

Proposed Amendments to Section 54 and Section 54F

It is proposed to impose a limit on the maximum deduction that can be claimed by assessee under Section 54 and Section 54 F to Rs 10 crores

Example – Section 54 : There is a LTCG amounting to Rs 20 crores then exemption available u/s 54 restricted to Rs 10 crores even if assessee purchased a new residential house amounting to Rs 20 crores or more.

Section 54 F – Net Sale consideration amounting to Rs 50 crores and LTCG amounting to Rs 15 crores then capital gain exemption will be 10/50*15 i.e. Rs 3 crores even if you have reinvested entire net sale consideration of Rs 50 crores.

2. Special provision for taxation of capital gains in case of Market Linked Debentures under section 50AA

Currently, Market Linked Debentures are Listed securities and taxed as Long Term Capital Gains @ 10% without indexation . It is proposed to insert a new section 50AA – to treat the full value of the consideration received or accruing as a result of the transfer or redemption or maturity of the “Market Linked Debentures” as reduced by the cost of acquisition of the debenture as capital gains arising from transfer of a short term capital asset.

These amendments will take effect from A.Y 2024-25 and subsequent assessment years.

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