Sec 54 exemption

This query is : Resolved

Aneel Lasod And Associates (Querist)
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16 December 2014 Dear Friends,

Assessee wants to sell his property which was bought in Feb. 2006, now he wants to get exemption of Capital Gain by investing in new property and part of investment has already been done which was registered in 2012.

Futher we clarify that new Property is under construction (builder) and possession will be available in Jan,2015.

Can assessee get exemption????

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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17 December 2014 For claiming exemption u/s 54 the construction should COMPLETE AFTER the date of transfer & within 3 years of the date of transfer.

The construction can START BEFORE the date of transfer. The only condition is that it should complete AFTER the date of transfer.

So the assessee is eligible for deduction u/s 54.

Aneel Lasod And Associates

Aneel Lasod And Associates (Querist)
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17 December 2014 But date of agreement is more than 1 yr before from the date of transfer of existing property i.e.sale.
Whether Exemption will be available only when date of agreement is 1 yr before and 2 yrs after from the date of transfer???

Aashok Kumar Sharma online

Aashok Kumar Sharma online

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23 July 2025 In your case, the assessee is looking to claim exemption under Section 54 for the capital gains arising from the sale of a property bought in February 2006, and part of the investment has already been made in a new property, which is under construction. The new property will be ready for possession in January 2015. Let's break down the key points to address your query:

Eligibility for Exemption under Section 54
Section 54 provides an exemption for capital gains arising from the sale of a residential property, provided the gains are invested in the purchase or construction of a new residential house.

Conditions for Exemption under Section 54:
Transfer of a Residential Property: The property sold must be a residential property.

Investment in a New Property: The assessee must invest the capital gains in:

Purchase of a new house within 1 year before or 2 years after the date of transfer.

Construction of a new house within 3 years from the date of transfer.

Time of Construction:

If the assessee is constructing the property, the construction must be completed within 3 years from the date of sale of the old property.

Part investment made in 2012 is fine, as long as the construction gets completed within the 3-year period.

Key Clarifications on Your Case:
Date of Agreement vs. Date of Transfer:

The date of agreement being more than 1 year before the date of transfer (sale) of the old property does not impact eligibility under Section 54 as long as the possession is taken within 2 years after the date of sale (for purchase) or the construction is completed within 3 years from the date of transfer (for construction).

The 1-year rule applies only to the purchase of the new house (i.e., the purchase of the property should not be more than 1 year before the date of transfer of the old property). However, in your case, it seems you are talking about construction, so the key condition is that the construction must be completed within 3 years from the date of transfer.

Date of Possession:

Since the possession of the newly constructed property is expected in January 2015, which is within 3 years from the date of sale, the assessee qualifies for exemption under Section 54 as long as the capital gains are used towards this construction.

Partial Investment in 2012:

The assessee has already made a partial investment in 2012, which is acceptable as long as the balance investment is made for the construction or purchase of the new property and the total amount is invested within the relevant timeframes.

Conclusion:
Yes, the assessee can claim the exemption under Section 54. The fact that the agreement was made more than a year before the sale is not an issue, as long as the construction is completed within 3 years from the date of transfer (sale) of the original property, which in your case will be January 2015, and the capital gains are properly invested.

Make sure that the assessee maintains all the necessary documents to show the investment made in the new property and that the construction is completed within the stipulated 3 years.

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