Exemption on Capital Gain Tax on sale of Residential House Property

 


Section 54: Exemption on Capital Gain Tax on sale of Residential House Property in India

 

The Income tax act exempts total or partial exemption of capital gain on sale of capital asset by investing in another capital asset within a prescribed time period subject to certain conditions.

Under Section 54:
Capital gain on sale of Residential Property

Conditions:

House property/properties is a residential house.

The house property (self-occupied or let-out) is a long term capital asset i.e it must be held for a period of more than 24 months before the sale of the property.

The assesse will have to purchase or construct a residential house within a prescribed period i.e purchase within a period of 1 year before the transfer or 2 years after the transfer or can construct within 3 years from the date of transfer.

The new property should be situated within India.

The new house property purchased or constructed has not been transferred within a period of 3 years from the date of purchase or construction.

Amount of Exemption:

The amount of Capital Gain or the cost of new house property (if constructed, then it includes the cost of land) whichever is less is the amount of exemption on capital gain.

From Assessment year 2020-21 if the amount of Capital Gain does not exceed 2 crores, the assesse can purchase or construct two residential house properties. However, the concession is available only once in a lifetime.

New house property transferred within a period of 3 years:

If the house property is transferred within a period of 3 years from the purchase or construction, then the amount of capital gain arising from the sale of the new property with the amount of capital gain exempted earlier will be chargeable to tax in the year of sale of the new house property.

Capital Gain Account Scheme:

If the amount of capital gain is not utilised for purchase or construction of ant house property before the furnishing of income tax return then the assesse can deposit that unutilised amount on or before the due date of the furnishing of return of income, in the Deposit A/c in any branch (except rural branch) of a public sector bank or IDBI Bank in accordance with Capital Gain Account scheme ,1988.

If a part of the capital gain amount was utilised for the purchase or construction of the house property, then the balance amount can be deposited on the capital gain account scheme. The amount already utilised for the purchase or construction of the house property together with the amount deposited in the scheme shall be deemed to be utilised for the purchase of a new house property.

 

If the amount deposited in the scheme is not utilised for the purchase or construction of a new house property, then the amount not so utilised shall be treated as long term capital gain of the previous year in which the period of 3 years from the date of transfer expires.

 

 

Ex. Determine the amount of exemption under section 54 :

Mr. A purchases a house property in Nagpur for Rs.12,50,000 on May 01 ,1995. Mr. A sells the house property for Rs. 60,00,000 on August 14,2019. Determine the capital gain/loss for the assessment year 2020-21. Fair Market Value of the property is on April 1,2001 is Rs.15,00,000.

(i)On December 4,2019,he purchases a house in Mumbai for Rs.55,00,000 for residential purpose.

Rs.

 Sale proceeds of Nagpur Property

       60,00,000

 Less: Indexed cost of acquisition 

 F.M.V of the property *CII of 2019-20/CII of 2001-02 (Rs.15,00,000*289/100)

        43,35,000

 Capital Gain

        16,65,000

 Less: Exemption under section 54

        16,65,000

 Capital Gain Chargeable to tax for the assessment year 2020-21

Nil

 

As Mr. A had invested Rs 55,00,000 to purchase a house property in Mumbai within a period of 2 years from the transfer of house in Nagpur the entire amount of capital gain is exempt.

(ii)On February 2021 ,Mr A sells the property in Mumbai for Rs 60,00,000.Can he claim exemption under section 54 w.r.t transaction (i)

Rs.

 Sale proceeds of Mumbai Property

       60,00,000

 Less: Cost of acquisition 

Rs.55,00,000 being the actual cost of the property minus Rs.16,65,000, being the exemption granted Under Section 54 in transaction (i) as the new house being sold within a period of 3 years from the date of purchase multiplied by CII for the F.Y 2020-21 divided by CII for the F.Y 2019-20

         39,94,239

(Rs.55,00,000-Rs.16,65,000)*301/289

 

 Capital Gain Chargeable to tax for the assessment year 2021-22

         20,05,761

 

Mumbai property is transferred within a period of 24 months from the date of acquisition .It is a short-term capital asset.

 

(iii)On 11 October, 2019,he deposits 35,00,000 in Capital Gain Account Scheme.

 Rs.

 Sale proceeds of Nagpur Property

       60,00,000

 Less: Indexed cost of acquisition 

 F.M.V of the property *CII of 2019-20/CII of 2001-02 (Rs.15,00,000*289/100)

        43,35,000

 Capital Gain

        16,65,000

 Less: Exemption under section 54 amount deposited in Capital Gain Account Scheme Rs.35,00,000

        16,65,000

 Capital Gain Chargeable to tax for the assessment year 2020-21

Nil

 

(iv) On December 14,2019,he deposits Rs. 15,00,000 in capital gain account scheme and on 21 March 2020 he purchases a house in Nasik for Rs.10,00,000 for residential purpose.

 Rs.

 Sale proceeds of Nagpur Property

       60,00,000

 Less: Indexed cost of acquisition 

 F.M.V of the property *CII of 2019-20/CII of 2001-02 (Rs.15,00,000*289/100)

        43,35,000

 Capital Gain

        16,65,000

 Less: Exemption under section 54 

       10,00,000

 (Cost of house property purchased at Nashik)

 Less: Exemption under section 54 

          6,65,000

 (Amount deposited in Capital Gain Account Scheme Rs.15,00,000)

 Capital Gain Chargeable to tax for the assessment year 2021-22

Nil

 

 

(v) On 02 December, 2019,he deposits 15,00,000 in Capital Gain Account Scheme. By withdrawing an amount of Rs.10,00,000 on 14 April,2022 he constructed a house property in Shirdi .The unutilised amount in the deposit amount is withdrawn by him after August 2022.

 

 Rs.

 Sale proceeds of Nagpur Property

       60,00,000

 Less: Indexed cost of acquisition 

 F.M.V of the property *CII of 2019-20/CII of 2001-02 (Rs.15,00,000*289/100)

        43,35,000

 Capital Gain

        16,65,000

 Less: Exemption under section 54 

        15,00,000

 (Amount deposited in Capital Gain Account Scheme Rs.15,00,000)

 Long Term Capital Gain

            1,65,000

 Assessment year 2023-24

 Amount deposited on Capital Gain Account Scheme on 02 December, 2019

       15,00,000

 Less: Cost of construction of house propert in Shirdi

       10,00,000

 Long Term Capital Gain 

          5,00,000

 

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