Section 54f

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Chintanshah (Querist)
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13 October 2011 my client has sold a land(NA) and construct a house on 1st floor. basement is already constructed and on the name of his brother. whether exemption under section 54F is allowed or not? pls specify any notification or circular or case law in support of the case. all other conditions was satisfied.

CA SUMiT PATWARi

CA SUMiT PATWARi (Expert)
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13 October 2011 Conditions : (1) Exemption u/s 54F can be claimed only against Long term capital gain (other than on sale of residential house).
(2) Exemption only to individual and HUF.
(3) Whole of the net consideration is utilised within a period of one year before or two years after the date of transfer for purchase, or within 3 years in construction, of a residential house - fully exempt.
If, however, only a part of net consideration is so utilised, the amount of exemption shall be equal to:-
Capital Gains * Cost of New Residential House
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Amount of Net consideration

4) The assesse does not own more then one residential house on the date of transfer of the original asset, exclusive of the one purchased for claiming exemption under this section i.e. section 54F

5) If the amount cannot be so utilised before filing the return, then inorder to avail of the exemption, it may be deposited under the Capital Gains Accounts Scheme, 1998 before the due date for filing the return.

6) If a tax-payer transfers the newly acquired residential house within a period of three years of its purchase or construction, then the amount of capital gains arising from the tranfer of the original asset which was not charged to tax, shall become taxable as long-term capital gains or the year in which the new asset is trasferred.

Important Notes
This concession will not be available in case where the assessee owns more than one residential house on the date of the transfer of the original asset. In other words, the deduction can be availed, even if the assessee owns one residential house on the date of transfer of the original asset. However, if the assessee purchases within two years of constructs within three years after such date any residential house (other than the new asset) the income from which is chargeable under the head ‘Income from House Property’. the amount of capital gains exempted under this section, shall be taxable as ‘long-term capital gains’ in the year in which such other house is purchased or constructed.

Net condideration means the full value of the consdieration as a result of the tranfer of the capital asset minus any expenditure incurred wholly or exclusively in connection with such tranfer.

So in your case, exemption will be available if the new floor is being constructed in the name of your client and provided all the above mentioned conditions are fulfilled/taken care of.

~Sumit Patwari~

Chintanshah

Chintanshah (Querist)
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14 October 2011 thanks sumit
is there any notification or case low in supporting this arguments. bcs i have to answer ITO for this