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Capital gain query - section 54

CA. Jimil Shah (Proprietor) (49 Points)

06 July 2013

Investment in Residential Property u/s. 54.

If I take a bank loan and invest in the New Residential House Property to claim exemption u/s,. 54 then...

Can amount of loan be considered as investment for the purpose of Section - 54?

Or only own fund portion is allowed to claim exemption u/s. 54?

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13 Replies

Deepak Dargad (Chartered Accountant....) (9787 Points)
Replied 06 July 2013

I Think you can claim deduction

Akshata (CA Final ) (324 Points)
Replied 06 July 2013

yes amount of loan can be taken as exemption..

"Under Section 54 – Any Long Term Capital Gain, arising to an Individual or HUF, from the Sale of a Residential Property (whether Self-Occupied or on Rent) shall be exempt to the extent such capital gains is invested in the:

Purchase of another Residential Property within 1 year before or 2 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

Provided that the new Residential House Property purchased or constructed is not transferred within a period of 3 years from the date of acquisition"

Also in the the quantum of deduction allowed,the Loan clause is not specified.

1 Like

Deepak Gupta (CA Student) (15922 Points)
Replied 06 July 2013

The only requirement for availing deduction u/s 54 is that the new residential house must be purchased or constructed within the period specified in the section. The source of funds is irrelevant.
.
Bombay High Court in CIT vs. Dr. P. S. Pasricha

Kerala High Court in CIT vs. K. C. Gopalan

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CA. Jimil Shah (Proprietor) (49 Points)
Replied 07 July 2013

Thanks a lot to all...:-)

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 07 July 2013

hi,deepak gupta

under section 54,u can claim exemption if and only if u invest in residential house property out of income from capitla gain only.i think purchase of residential house property out of loan taken can be claimed as deduction under section 80C as repayment of housing loan

Deepak Gupta (CA Student) (15922 Points)
Replied 08 July 2013

Originally posted by : nuli swami ayyappa
	hi,deepak gupta under section 54,u can claim exemption if and only if u invest in residential house property out of income from capitla gain only.i think purchase of residential house property out of loan taken can be claimed as deduction under section 80C as repayment of housing loan

If the assessee utilised the sale consideration for other purpose and borrowed money for the purpose of purchasing the residential house property to claim exemption u/s 54, then the contention that the same amount should have been utilised for the acquisition of new asset could be accepted.

Bombay Housing Corporation v Asst. CIT (2002)

Also followed in Mrs. Prema P. Shah, Sanjiv P. Shah v ITO (2006)

Lokesh (CS professional) (493 Points)
Replied 08 July 2013

Dear Jimil,

Answer of Akshata is perfectly fine.

GAJJALA LOHITHA (CA-Article Assistant) (48 Points)
Replied 08 July 2013

under Section 54 Deduction can be taken only if there is a long term capital gain out of sale of residential property and that amount is invested in purchase of residential property.

here section 54 wil not be attracted as the source of fund is loan taken but not capital gain.

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 08 July 2013

yes. gajjala lohita is right.here taking a loan does not amount to income.it creates liability.u/s 54F u can invest in residential house out of any income to get exemption.but here loan does not amount to income,but to the extent of investment other than loan can get exemption under section 54F

B.SEKAR (manager-accts.) (61 Points)
Replied 01 August 2013

Dear friends.

The sale consideration of property should be invested in the purchse of first or second hand building or property. If it is not utilised for that purchase of property, then capital gain will attract. The interest for the loan obtained from the bank can be taken for exemption, not more than rs.150000/- per year.

Secondly, if the purchase of house valued more than 30.00 lacs, it will attract TDS. That amount has to be deducted and should be remitted to the IT dept. Please take care and do not get into trouble for querry.

sekar mach

CA Payal Agarwal (Executive Officer) (25 Points)
Replied 01 August 2013

Yes you can provided you satisfy timing criteria as specified..

Mihir (Wealth Manager) (5293 Points)
Replied 01 August 2013

You sold the property and wants to save capital gain tax availing exemption u/s 54 by purchasing another property. And you want to know whether home loan taken for purchasing a property will fulfill the condition of section 54. If you take a home loan, then where is the money you received out of the sale proceed from the property? What are you going to do with that money? Even if you take a loan, the bank will first pay the seller and the bank will recover from you in monthly installments for maybe 10-15-20 years. Are you making the full payment toward purchasing the property? No. The bank is paying and will charge you every month for the loan tenure. So your idea will not fulfill the condition of exemption u/s 54.