Section 54F deals with the exemption of capital gain on transfer of any long term capital asset other than a residential house property.
Only an Individual or HUF can claim exemption. In other words, no other person is eligible for claiming exemption u/s Section 54F.
Under section 54F, exemption is available only if the capital asset which is transferred is a long term capital asset but other than a residential house property (it may be plot of land, commercial house property, gold, shares/securities or any other asset but not a residential house property)
To claim the exemption, the taxpayer has to purchase one residential house property within 1 year before or within 2 years after the date of the transfer of the original asset OR construction should be completed within 3 years from the date of the original asset.
The new residential property should be located in India.
Not more than one residential house property should be owned by a taxpayer
Exemption would be available only if on the date of transfer of the original assets, the taxpayer does not own more than one residential house property (other than the new house)
Amount of exemption
- If the cost of new asset > net sale consideration of the original asset, entire capital gain is exempt;
- If the cost of new asset < net sale consideration of the original asset, then exemption would be calculated as per the below formula:
(Cost of new house X Capital Gain/Net sale consideration)
The amount of exemption cannot exceed the amount of capital gain.
When exemption granted u/s Section 54F may be withdrawn
- If the assessee transfers the new house within 3 years of its purchase/construction – Capital gain which arises on the transfer of the new house will be taken as short term capital gain. Also, the capital gain which was exempt u/s 54F shall be treated as long term capital gain of the year in which the new house is transferred.
- If the assessee purchases, within a period of 2 years of the transfer of original asset, or constructs within a period of 3 years of the transfer of such asset, a residential house other than the new house – Capital gain which was exempt u/s 54F shall be deemed to be income by way of long term capital gain of the year in which another residential house is purchased or constructed.
If the amount is not utilised for the purchase/construction of the new house till the due date of submission of return of income, then it should be deposited in “Capital Gain deposit account scheme”. If the amount deposited is not utilised fully for purchase/construction of new residential house property within the stipulated period then following amount will be taxable as long term capital gain of the previous year in which the period of 3 years from the date of the transfer of the original asset expires.
(unutilised amount in deposit account X Capital Gain/Net Sale consideration)
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