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54f

05 December 2015

One assessee sold a property and with that capital gains constructed a property and claimed exemption u/s 54F. My doubt is, for claiming exemtpion u/s 54F, the construction starting date must be after the sale of property and not before for which aAssessee's Authorized Representative is not accepting. Please clarify

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4 Replies

Nikhil Kaushik (Fellow CA) (86528 Points)
Replied 06 December 2015

it can be before the sale of property. Enough case laws available on this issue. Kindly do some research....

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Ruchi (CA) (1410 Points)
Replied 06 December 2015

Agreed. Construction may commence even before transfer of capital asset. However, the construction should be completed within 3 years of transfer. Date of commencement of construction is irrelevant. You can refer to case law: CIT v. Bharti Mishra[2014]

Ketan Kapoor (Audit) (124 Points)
Replied 07 December 2015

Construction of another house property may start before the sale of the house property in question, but it should be completed within the specified time of claiming exemption u/s 54F. For your clarity, I am stating the law in a bit simplified form. For bare text, kindly refer https://www.incometaxindia.gov.in/pages/acts/income-tax-act.aspx

U/s 54F, any long term capital gains arising to any individual of HUF from sale of residential house property(whether self occupied or on rent), shall be exempt to the extent such capital gain is invested in:

Purchase of another Residential House property within one year before or two years after the due date of transfer of the property sold and/or;
Construction of residential house property within a period of 3 years from the date of acquisition.

The New House Property must be held as capital asset for 3 years from the date of purchase or construction.

Relevant case laws- CIT vs Bharti Mishra, UOI vs Wood Papers Limited, G.P. Ceramics Pvt Ltd. vs CTT

CA YOGESH HARJAI (Tax Advisor) (127 Points)
Replied 07 December 2015

FOR THE PURPOSE OF CLAIMING EXEMPTION U/S 54F, CONSTRUCTION OF NEW PROPERTY HAS TO BE COMPLETED WITHIN 3 YEARS FROM THE DATE OF SALE. THERE IS NO CONDITION THAT CONSTRUCTION SHOULD ALSO BE STARTED AFTER SALE. IT CAN START BEFORE THE SALE AS WELL.

FURTHER IF YOU HAVE SOLD A HOUSE PROPERTY AND INVEST THE GAINS IN CONSTRUCTION OF NEW PROPERTY THEN WHY HAVEN'T YOU CLAIMED EXEMPTION U/S 54 INSTEAD OF 54F ?