CAPITAL GAINS IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE U/S 54F OF INCOME-TAX ACT, 1961

  • Jain Anurag
  • 03 May, 2022


The object of this section is to save capital gain by the sale of long-term capital assets other than residential house property as so many person they sale some of their assets to purchase residential house property so if they fulfill the condition of this section then can save the tax.

Exemption u/s 54F is available to an individual or a Hindu Undivided Family (HUF) only when there is the transfer of any long-term capital asset other than a residential house property.

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The following condition needs to be satisfied in order to avail of the exemption under Section 54F. The amount received on the transfer of long term capital assets is invested in either of the following ways:

The amount is invested to purchase one residential house in India. The investment should be made within a period of 1 year before or 2 years after the date of transfer of the long-term capital asset.

OR

The amount is invested to construct one residential house in India. The investment should be made within a period of three years.

The exemption under section 54F is not available in the following situations:

  1. The assessee already owns more than one residential house on the date of transfer of the long-term capital asset.
  2. The assessee purchases additional residential houses (other than the new residential house purchased/ constructed to claim an exemption under section 54F) within a period of one year from the date of transfer of the long-term capital asset.
  3. The assessee constructs an additional residential house (other than the new residential house purchased/ constructed to claim an exemption under section 54F) within a period of three years from the date of transfer of the long-term capital asset.

In the above three situations, the number of capital gains arising from the transfer of the long term capital asset, which was not charged to tax, will be deemed to be the income from long term capital gains in the previous year in which another residential house is purchased or constructed (other than the new house) whose income is taxable under the head “Income From House Property”.

Circumstances under which exemption under Section 54F would be withdrawn

The assessee cannot transfer the newly purchased or constructed residential house for a period of three years from the date of purchase or date of construction, as the case may be. However, if the assessee transfers the newly purchased/ constructed residential house, then, the capital gain exempted under section 54F would be taxable as long-term capital gain in the previous year in which the residential house is transferred.

Capital Gain Deposit Account Scheme

If the amount is not re-invested within the last date of filing of return of income then, the assessee is required to deposit the unutilized amount into the Capital Gain Deposit Account Scheme. The unutilized amount deposited into the account can be used for purchasing or constructing the residential house within a period of two years or three years as the case may be. If the assessee fails to utilize the amount within the specified period of two or three years, then, the unutilized amount would be treated as a capital gain on a proportionate basis based on the exemption claimed earlier.

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