Section 54 of the Income Tax Act
Profit on Sale of Property used for Residence
1. Assessee being an individual or a HUF.
2. The capital gain arises from Transfer of Residential Property.
3. The Income from this Property is chargeable to Income Tax under the Head “Income From House Property”.
4. This Property is called original asset.
5. Assessee with a period of one year before the date of Transfer and after two years from the date of transfer of original assets or within a period of 3 years from the date of Transfer of original asset constructed a residential Property.
The calculation of the LTCG shall be calculated as under:
a) If the amount of the Capital Gain is greater than the cost of the new asset being (Residential House). The difference shall be charged to tax u/s 45 of the Act as the Income of the Previous year. If the new asset is sold, any Capital Gain arising from its transfer within a period of 3 years of its purchase or construction, as the case may be, the cost shall be NIL; or
b) If the amount of the Capital Gain is equal or less than the cost of the new asset the Capital Gain shall not be charged u/s 45; and if the new asset is sold any Capital Gain arising from its transfer within period of 3 years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of Capital Gain.
If the new asset is not purchased by the assessee:
If the new asset is not purchased within one year before the date of transfer of the original asset, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of Income u/s 139, shall be deposited by him before furnishing such return in an account in any such Bank and such return shall be enclosed by proof of such deposit.
The amount, if any, already utilized by the assessee, of partly for the purchase of construction of the new asset together with the amount so deposited shall be considered to be the cost of the new asset.
If the amount deposited with the Bank is not utilized wholly of partly for the purchase or construction of the new asset within the period specified then,
The amount not so utilized shall be charged u/s 45 as the Income of the previous year in which the period of the 3 years from the date of transfer of the original asset expires and The assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.