Learn about Section 54 exemption from capital gains tax on the sale of a house property as per the Finance Act 2023. Understand eligibility, conditions, limits, consequences, and revocation of the exemption.
Exemption from Capital Gains on transfer of House Property – Section 54 (As per Finance Act 2023)
1. Who can avail benefit – Individual and HUF
2. Asset Transferred/Sold – Asset MUST be Residential House Property.
3. Period of Holding– Residential House Property which is transferred MUST be a long term Asset, in other words transferred house property should be in possession for more than 24 months.
4. Asset to be purchase– Asset MUST be Residential House Property purchased in India.
5. Limit of Exemption Amount– Amount Invested or Rs. 10 Crores Whichever is lower. (applicable from 01st April 2023 as per Finance Act 2023)
6. Time to Purchase new House – Two Years from date of transfer of Original House Property. New House can also be purchased one year earlier from date of transfer of transfer of original House Property.
7. Time for Construction of New House – Construction of New House must be completed within 3 years from date of transfer of Original House Property.
8. Capital Gains Account Scheme– If new house is not purchased or not constructed before filling of Income Tax Return u/s 139(1) for that year in which original house property was transferred, then amount of capital gains is required to deposit in Capital Gains Account Scheme with bank as notified by government.
Note- If amount of capital gains does not exceed 2 Crore rupees then amount may be invested at the option of assessee to purchase or construct TWO residential houses in India. If this option is exercised once then in any subsequent assessment year assessee can’t opt this option (it means that this option is one time opportunity in life time for the assesse).
Revocation of Exemption under Section 54
Exemption shall revoke in following cases
- If new house sold within 3 years from the date when such new house was purchased or it’s construction completed.
- In case of purchase – If new house is not purchased within 2 years from the date of transferred of original house property.
- In case of construction – If new house is not constructed within 3 years from the date of transferred of original house property.
- Amount which is not spent from capital gains accounts scheme.
Consequences on Revocation of Exemption under Section 54
In case new house sold within 3 years from it’s purchase or completion of construction then cost of acquisition of new house shall be reduced by the amount which got exempted. Lets take some cases
| Case – I | Case – II | Case – III | |
| Long Term Capital Gains Exempted | 1,00,00,000 | 1,00,00,000 | 1,00,00,000 |
| Investment in new house | 1,00,00,000 | 1,50,00,000 | 1,20,00,000 |
| New House sold within 3 years (say in second year) from it’s purchases/ construction | 1,50,00,000 | 2,00,00,000 | 80,00,000 |
| Cost of Acquisition for calculating capital gains of new house | Nil (1 Crore i.e. cost of acquisition less 1 Crore i.e. amount of capital gains exempted earlier) | 50,00,000 (1.5 Crore i.e. cost of acquisition less 1 Crore i.e. amount of capital gains exempted earlier) | 20,00,000 (1.2 Crore i.e. cost of acquisition less 1 Crore i.e. amount of capital gains exempted earlier) |
| Capital Gains of New House | 1,50,00,000 | 1,50,00,000 | 60,00,000 |
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(The author is practicing chartered accountant and can be reached out at [email protected], Mobile- 9811270863)
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