Income Tax

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This discussion clarifies whether reinvesting capital gains from selling inherited vacant land into a new housing plot qualifies for exemption under Section 54 of the Income Tax Act. It explores the conditions for claiming this exemption, particularly regarding the timeline for starting and completing construction on the new property. Failure to complete construction within the stipulated three years from the sale date could result in previously exempted capital gains becoming taxable.

S.Jegadeesan

S.Jegadeesan (Querist)

10 January 2021 I would like to clarify the following

Whether exemption U/s 54 available in case reinvested in housing plot (Vacant Site) ?
(to the extent of capital gain arrived Out of the sale proceeds of Vacant housing plot )

i.e. Ms. Kavitha got some Vacant land through inheritance in April .2018 (Which was originally bought by her Grandfather in 1986) and the same has been sold out in Dec.2019 . She reinvested the Capital gain portion only in Housing site and start the construction of the house through another one builder in Dec.2020. Whether this can be claimed as an exemption U/s 54?

What will be the impact in case she just reinvested the capital gain in Vacant housing site and not start any construction within 3 years from the date of property sold ?

K Srinivas, CMA CS

K Srinivas, CMA CS (Expert)

10 January 2021 in case of construction, the construction should be completed within 3 yrs from the date of transfer. Therefore, she can claim exemption u/sv54

K Srinivas, CMA CS

K Srinivas, CMA CS (Expert)

10 January 2021 If the exemption is claimed but the construction is not completed, the capital gains exempted earlier will be chargeable to tax as long term capital gains

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