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Deduction u/s 54

Sanjay Jain (Partner) (25 Points)

03 March 2010

I have purchase a residential Plot ten years ago and constructed a house in last year. If I sell the house property now, and purchase another house within stipulated time whether I can claim deduction u/s 54. Whether indexation of construction cost shall be allowed on the basis on construction cost incurred year wise

Sanjay Jain

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11 Replies

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 03 March 2010

Ofcoarse...

Its STCG dear

krutika (CA FINAL) (49 Points)
Replied 03 March 2010

sorry dhiraj but i think to get exemption U/s 54 the asset must be a long tem asset......do check it

Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 03 March 2010

Dear Friends,

Plz check the below mentioned info for your ready reference.

How to minimize Capital Gain Part – 1: Capital Gain from Transfer of a Residential House-Exemption of Capital Gains u/s 54

Introduction
Any long-term capital gains arising on the transfer of a residential house (including self-occupied house) will be exempt from tax if,

Conditions
1) If the assessee has within a period of one year before or two years after the date of such transfer purchased, or within a period of three years constructed, a residential house.

2)The assessee must not transfer the new house, within a period of three years from the date of its purchase or construction, as the case may be. Otherwise the exemption allowed under this section
shall be reduced from the cost of the new house, in computing the capital gains arising therefrom.

3)If the whole or any part of the capital gain cannot be so utilised for acquisition a residential
house before filling the return, the same should be deposited in Capital Gains Accounts Scheme, 1988 in order to claim exemption, beforethe due date for furnishing the return.

How much amount will be exempt?
The amount of exemption available is equal to the amount so utilised or the amount of capital gain, whichever is less.

If the amount of capital gain is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction, provided that the acquisition of plot and also the construction thereon, are completed within the specified period as aforesaid.

In simple words, capital gains shall be exempt to the extent it is invested in the purchase and/or construction of another house.

regards,

ratan