Section 54F - Specific Queries

Tax queries 382 views 3 replies

Ramakrishna C

Finance Professional

32 Points Posted on 19 June 2023

Dear members,

A friend of mine sold certain mutual funds in Jun-2020 for a total consideration of INR 50 Lakhs and made LTCG of INR 10 Lakhs. Later in Feb-2021, he bought a residential property (building + land) for INR 20 Lakhs near Hyderabad. This is his first owned residential property. The property has been vacant since purchase. He works and stays in Mumbai on rent and claims HRA.

In his ITR for A.Y. 2021-22 (F.Y. 2020-21), he claimed Section 54F deduction of 4 Lakhs (calculated as 20/50*10) and paid LTCG tax on the remaining 6 Lakhs.

Now, he has 2 questions:

As the property bought was an old one, he is planning to demolish the building and keep the land vacant. Does this have any implication for the deduction already claimed or should he wait for some time (say Feb-2024 by which 3 years will be completed) before demolishing it?

He bought another residential property in Mar-2023 from own funds in Chennai. He is planning to sell some mutual funds in the current financial year (F.Y. 2023-24) which will have significant LTCG. Can he claim Section 54F deduction again against these LTCG when filing the returns for F.Y. 2023-24 (A.Y. 2024-25)? Essentially would like to know if there any limit on the number of times one can claim Section 54F deduction in a lifetime on different residential properties.

Thanks in Advance!

Krishna

Replies (3)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

211641 Points Posted on 19 June 2023

1. As he purchased another residential property within 3 years of claiming exemption u/s. 54F, he has to revert the claim and pay tax over the Rs. 4 lakhs LTCG in AY 2023-24.

2. After that he can demolish the structure and reconstruct the structure as per his wish.

Ramakrishna C

Finance Professional

32 Points Posted on 22 June 2023

As per proviso (a)(ii) to Section 54F, the exemption becomes invalid if he purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset. 3 year period is for construction and not purchase.

In this case, date of transfer of original asset is Jun-2020 and date purchase of the second residential house in Mar-2023, which are more than a year apart.

Based on the above, would your response change?