Regarding section 54 income tax act

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This discussion clarifies Section 54 of the Income Tax Act concerning reinvesting capital gains from a property sale into a new residential property to save tax. The key takeaway is that you only need to reinvest the amount of the capital gain itself (calculated as sale price minus indexed cost of acquisition), not the entire sales proceeds. The exemption amount is the lower of the capital gain or the investment made in the new property.

primecolonisers

primecolonisers (Querist)

01 April 2024
I have an asset purchased on 1April2001. Now it has been sold this year i.e. in the pear 2023 in order to save tax i want to reinvest the amount in a new residential property( as per section 54).
My query is do i need to invest entire sales proceeds(net sales) or i can deduct cost of acquisition amount also taking into account inflation index.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

01 April 2024 You have held the asset less than 36 months you are not eligible to claim exemption under section 54.

CA Roomi Gupta

CA Roomi Gupta (Expert)

01 April 2024 Section 54 of the Income Tax Act allows the lower of the two as an exemption amount for a taxpayer:
Amount of capital gains on transfer of residential property or
The investment made for constructing or purchasing new residential property
The balance amount (if any) will be taxable as per the Income Tax Act.

So you need to invest only capital gain arise (Sale price- indexed cost)

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