Claiming exemption of long term capital gains tax u/s 54f

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Kapil Tiwari

Senior Export Executive

449 Points Joined May 2012

I have understood that to claim exemption of Long Term Capital Gains Tax on the sale of a vacant land, the following are the conditions:

1)We have to construct a new residential house within 3 years from the date of transfer, or

2)We should have purchased a residential house one year before, or

3)We have to purchase a residential house two years after the date of transfer.

The conditions for claiming the exemption are:

a)We should not own more than one residential house, other than new asset, on the date of transfer of original asset.

b)We should not purchase within a year or construct within three years any residential house, other than new asset after the date of transfer of the asset.

c)The income from such residential house is chargeable under the head "Income from House Property", other than the one owned at the time of transfer.

In one particular case, the assessee owned one residential house(given on rent) plus one commercial property(given on rent),that is total two properties, on the date of transfer of the original asset. Since the assessee owned only one residential house on the date of transfer of the original asset, can he claim exemption under section 54F by purchasing a new residential house within the stipulated period?
(Can the ownership of the commercial property be ignored?)

Replies (8)

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

Yes he can claim the exmeption as the other property is an commecrial property and the section talks about residential property.

Had both the properties been residential then would not had been eligible to claim the exemption.

Kapil Tiwari

Senior Export Executive

449 Points Joined May 2012

Sir, I request you to clarify one additional doubt.

In early 1980's, a ground floor "residential flat" was purchased by a person. This residential flat was never used for residing in. It was let out to 2 or 3 doctors, who practised in it and it functioned as a polyclinic. For all these years, till date, it has been rented out to doctors. Can this property be called a "commercial property" given out on rent? I am asking this question in particular reference to section 54F and whether this "commercial property(?)" can be ignored and a second residential property be purchased for availing LTCG tax exemption. How is a "commercial property" defined as per our Income Tax laws? Which Income Tax Act Section should be referred to?

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

Mr tiwari, Commercial property is nowhere defined under the I-t laws. However we should go by the natural meaning for commercial property. Where any property is being let-out for commercial purpose as stated by you above, then it will be termed as commercial properyt. As stated by you the property is being let-out till date to the doctors, so it should be consdiered as an comercial property. However this fact whould be proved to the satidcation of the ITO to get the benefit for section 54F.

Kapil Tiwari

Senior Export Executive

449 Points Joined May 2012

Dear Giridharji,

Kindly advise if, in this particular case, the person should:

1)Avail 54F exemption. not pay tax and file income tax return. Then he can wait for the ITO's interpretation. If the ITO is satisfied that the property is "commercial" in nature, there is no problem. If the ITO is not satisfied regarding availing of the 54F exemption, tax can be paid subsequently on demand.

2)Or, should the person pay long term capital gains tax and then claim refund under section 54F?

Kindly advise if the ITO's opinion can be taken in advance, prior to filing the Income Tax Return? Dear Giridharji, my earnest request to you is that you suggest what could be the best and prudent course of action.

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

You can file the return by claiming the exemption u/s 54F. If the ITO takes up the case for scrutiny then you could prove against his deciusion. Also I advise you to consult your CA in this regard & he can also guide you through this if the ITO could take up yoru case for scrutiny.

Kapil Tiwari

Senior Export Executive

449 Points Joined May 2012

Thank you very much for your valuable guidance! I shall always be grateful to you!

Kind Regards/Kapil Tiwari

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

No Problem MR Tiwari. You are always welcome. :)

navnitgajja

partner

21 Points Joined June 2011

A person has a commercial asset and a resi asset. He sells his commercial asset and claims deduction u/s 54F.

In case he sells his resi asset which he was initially having than can he claim deduction u/s 54 or sub section 2 to section 54F will apply and the deduction claimed u/s 54F be reversed in case he purchases a new resi house within 2 yrs from the date of transfer of commercial asset?