430. Whether capital gain arising from transfer of a self-occupied residential house would be entitled to exemption
1. Section 54 of the Income-tax Act provides for exemption in respect of capital gain arising from the transfer of a long-term capital asset, being a residential house, the income of which is chargeable under the head ‘Income from house property’ if the conditions laid down in the said provision are fulfilled.
2. Under section 23(2) of the Income-tax Act, as amended by the Finance Act, 1986, the annual value of one house in the occupation of the owner for purposes of his own residence is taken as nil. A question has been raised whether capital gain arising from the transfer of such a house property would be entitled to exemption under section 54 of the Act.
3. The question appears to have been raised because of the words italicised in para 1 above. As the annual value of a self-occupied house would be taken to be nil by virtue of section 23(2) of the Act, an Assessing Officer may take the plea that the income of such a house is not chargeable under the head ‘Income from house property’.
4. The Board is of the view that such a construction of the aforesaid provision in section 54 of the Act is not correct. Income from a self-occupied residential house is chargeable under the head ‘Income from house property’ even though in certain circumstances such income may be computed at nil or at a negative figure by virtue of section 23(2) read with section 24 of the Act.
5. Thus, a person shall be entitled to claim exemption under section 54 of the Act even in respect of a self-occupied residential house.
Circular : No. 538, dated 13-7-1989