Section 54 Capital Gain Tax exemption on Residential House Property Transfer

Section 54 of the Income Tax Act, 1961, provides tax exemption on Long Term capital gains arising from the sale of a residential property, provided certain conditions are met.

Who is Eligible for Section 54 Exemption??

Any Individual or HUF

What is Transferred ??

• Residential House Property, (buildings or lands appurtenant thereto)
• being a Long-term Capital Asset u/s 2(29A)

What is required to Acquire ??

Residential House Property,

1. Within 1 year before transfer or

2. Within 2 year after transfer or

3. Within 3 year after transfer, if Residential House is constructed

Conditions to be Fulfilled

• Where the amount of capital gains exceeds ₹2 crore,

=> One residential house in India should be

1. Purchased Within 1 year before transfer or

2. Purchase Within 2 year after transfer or

3. Constructed Within 3 year after transfer

• Where the amount of capital gains is upto ₹2 crore, may at his option,

=>  Two residential house in India should be

1. Purchased Within 1 year before transfer or

2. Purchase Within 2 year after transfer or

3. Constructed Within 3 year after transfer

• Asseesse has to deposit amount of Capital Gain into Capital Gain Account Scheme (CGAS)

Amount eligible for Section 54 Exemption??

• Actual Capital Gain OR
• Costs of New Assets / Deposited Amount in CGAS only upto ₹10 Crores

=> Whichever is Lower

Lock-in period for transfer of New Capital Asset Purchased ??

• Asseesse has not to transfer New Assets within 3 years from the date of transfer or construction,.
• Otherwise Amount Exempled earlier that shall be Taxable in the year of Transfer.

Examples for determination of Amount of Exemptions

*Such an Amount is required to deposited in CAGS.

Capital Gain Account Scheme (CGAS)

Time Limit for Deposit of Amount in CGAS is lower of :

• Due Date of Filling of Income Tax Return u/s 139 OR
• Actual Date of Income Tax Return Filled

If unutilized amount of LTCG are not deposited in CGAS, then the extent to which such an amount not deposited are taxable

Clarifications

• Where the Assessee has acquired 2 adjacent flats and he had effected modification to make them single flat by opening the door between them. it was immaterial that flat was acquired from two different sellers and two separate sale deeds. Hence, both flats shall be deemed single house property for the purpose of exemption u/s 54.
• New Asset transferred within 3 yrs from date of purchase or construction then exemption claimed earlier shall be withdrawn & COA of new asset reduced by exempted Capital Gain while calculating CG on new asset.
• For example, If in AY 2020-21, LTCG of  ₹7,00,000 is exempted and constructed a new property from that LTCG. If during AY 2023-24,if such property was sold, then ₹7,00,000 exempted earlier was taxable.