Section 54 Capital Gain Exemption
Income Tax Act

What is Section 54 of Income Tax Act: The Section 54 of the Income Tax Act allows the lower of the two as exemption amount for a taxpayer: Amount received as capital gains on transfer of residential property, or. Investment made for constructing or purchasing a new residential property.

Only individuals or HUF are eligible to claim this benefit. The companies cannot reap the benefits of this section.

The house property; taxpayer is selling should be a long term capital asset.

The property that is to be sold should be a residential house. Income from this property should be charged under the head income from house property.

The new house property should be purchased either one year before the date of transfer or two years after the date of sale or transfer. In case of construction of new house the individual is given an extended time period to construct house i.e within three years of the date of transfer or sale.

The house property that is bought should be in India.

Amount Exempted: Amount received as capital gains on transfer of residential property, or Investment made for constructing or purchasing a new residential property.

If the individual fails to construct or purchase a new house property within the stipulated time period, he or she can deposit the capital gains proceeds in Capital gains Account Scheme in any public sector bank and avail the exemption from this section.

Non-utilisation of the amount deposited in Capital Gain Deposit Account Scheme: The amount deposited in the Capital Gains Deposit Scheme needs to be withdrawn for construction or purchasing of new house property within two to three years of deposition. If the assessee do not withdraw this amount within the stipulated time period then the amount of capital gains will be taxable in the hands of the taxpayer.What if new house is transferred within 3 years after claiming exemption: Individual should hold new residential property purchase for atleast 3 years. if he or she has sold it within 3 years the amount of exemption claim shall be liable to income tax. The cost of acquisition of new house would be reduce accordingly.Long term capital asset means a capital asset held by an assessee for more than 36 months immediately preceding the date of its transfer
Section 54F Comparision: Exemption under Section 54F is available on long-term Capital Gain on sale of any asset other than a House Property. Capital gain under section 54F is exempted on prorata basisOnly One house property can be purchased or constructed.The property must only be bought on the name of the seller and not on anybody else’s name.If the builder of the new residential construction fails to hand over the property to the taxpayer within 3 years of purchase, the exemption is still allowed.
If the cost of the new residential property is lower than the total sale amount, then the exemption is allowed proportionately. For the remaining amount, you can reinvest the money under Section 54EC within 6 months.