Capital Gains Exemptions under section 54 AND 54F

In this article, we will focus on solely on difference in Capital Gains exemptions u/s 54 and 54F. When there is sale of property / real estate, there are high chances that it will result in Capital Gain to the owners. When a person is selling a capital asset in order to book profit he has to pay either short-term or long-term capital gain on the difference between the net sale consideration and the actual cost of acquisition. The Income-tax Act, 1961 has also specified various Capital Gains Exemptions that are available on long-term capital gains.

Exemption u/s 54

 Exemption to capital gains arising from transfer of a residential house property (being building or land appurtenant thereto), the income of which is chargeable under the head Income from house property.

Exemption u/s 54F 

Exemption to capital gains arising from transfer of a long-term capital asset other than a residential house property (for instance, it may be a plot of land, commercial house property, gold, shares etc but not a residential house property).

With this table below, we will explain various provisions of section 54 and 54F in detail:

Capital Gains Exemption - Section 54 vs 54F

No.ParticularsSection 54Section 54F
1Asset transferredResidential House propertyTransfer of a long term capital Asset not being a residential house
2Type of Capital gainLong termLong term
3Investment should be made inResidential House PropertyResidential House Property
4How to investPurchase or constructionPurchase or construction
5Time limit for construction3 years from the date of transfer3 years from the date of transfer
6Time limit for purchase1 year before transfer or 2 years after transfer1 year before transfer or 2 years after transfer
7Amount of exemptionAmount of investment.Amount of investment * Capital gains / Net sale consideration
8If the amount is not invested before the date of filing return, what should be done?Deposit in a Capital Gain Deposit Scheme in any specified Bank and enclose the proof of such deposit with the return of income.Deposit in a Capital Gain Deposit Scheme in any specified Bank and enclose the proof of such deposit with the return of income.
9What is the consequence if the full deposit is not utilised?The amount will be taxable in the year of default. (Either if there is withdrawal and the amount is not utilized or at the end of three years of transfer and there is no purchase or construction)The amount will be taxable in the year of default. (Either if there is withdrawal and the amount is not utilized or at the end of three years of transfer and there is no purchase or construction)
10Can the person hold any other house property on the date of transfer other than the exempted asset (due to purchase one year before the date of transfer)?Yes. The person can hold any number of house property on the date of transfer.No. The person can hold only one house property other than the new exempted asset, otherwise he cannot claim exemption u/s 54F
11Can the person purchase a new house property within 1 year from the date of transfer or constructs a new house property from 3 years from date of transfer other than the exempted asset?YesNo. If he does so, he will lose the exemption and he will be taxed in the year in which new asset is purchased or constructed for the exempted amount as long term capital gain.
12What is the consequence if the exempted house property is transferred within three years of acquisition?The amount of capital gain exempted from tax on the original asset will be reduced from the cost of acquisition of the new assetThe amount of capital gain which is claimed exempted will be taxed as such in the year in which transfer takes place.
13Nature of capital gain in case of the above default.Short term Capital gainLong term Capital gain.

If you are still not clear and need further assistance, then please reach out to us –

CA Mitesh and Associates Chartered Accountants Mumbai090825 14106

Capital Gains Exemptions 54 - 54F | Capital Gains Tax Advisor | CA

 

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