Note on Section 54 of the Income Tax Act

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Note on Section 54 of the Income Tax Act
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• Section 54 of the Income Tax Act applicable only
  to the Individual/HUFs who transferred a
  long-term capital asset, other than a Residential
  house. to Claim section 54 exemption The assessee
  should not own more than one Residential house on
  the date of transfer to claim this exemption.
• Conditions to be fulfilled to claim capital gains
  exemption under section 54
• The assessee should Purchase one residential
  house situated in India within a period of 1 year
  before or 2 years after the date of transfer or
• Construct one residential house in India within 3
  years from the date of transfer.
• If such investment is not made before the date of
  filing of return of Income, then the net sale
  consideration has to be deposited in the Capital
  gain account and the amount so deposited shall
  deemed to be the cost of new asset.
• The assessee should not
• Purchase any other residential house within a
  period of 2 years or Construct any other
  residential house within a period of 3 years from
  the date of transfer of the original
  asset.

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• Quantum of section 54 exemption
• If cost of new residential house is more than or
  equal to the net sale consideration of original
  asset, entire capital gains is exempt.
• If cost of new residential house is less than
  Net sale consideration of original asset, only
  proportionate capital gains is exempt i.e. (LTCG
  Amount invested in new house / Net sale
  consideration).
• Consequences if the new house is transferred
  within 3 years from the date of its purchase
• If the new asset is transferred before the
  expiry of 3 years from the date of its purchase
  or construction, as the case may be, then capital
  gains arises on transfer of the new house and the
  capital gains exempted earlier under section 54F
  would be taxable as long-term capital gains.
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