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Deduction u/s.54f

Dagliamit (Finance Professional) (42 Points)

24 June 2016

Hello Everyone,

I have sold shop in 35 lacs. Indexed cost of shop is Rs.4 lacs. Hence there is capital gain of Rs. 31 lacs. I have purchased flat in same financial year of Rs75 lacs. I have received finance of Rs.56 lacs on flat as Housing Loan. How much amount can be exempted U/s.54F ? Please reply with Section, Judgement and logical arguments. This is query facing real problem.

Summery :

Rs. 4,00,000/-Purchase (Indexed Value )

Rs. 35,00,000/- Sale Proceeds

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Rs.31,00,000/- Amount of Long Term Capital gain on Sale of Shop

Rs75,00,000/- Value of New Flat purchased

Rs.54,00,000/- Received from Bank as Home Loan

Can ITO disallow as under :

Rs.75,00,000/- New Assets cost

Rs.54,00,000/- As Loan sanction

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Rs.21,00,000/- Showing elligible U/s. 54F

Expert please answer in details with

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13 Replies

CMA Poornima Madhava (CMA) (13097 Points)
Replied 24 June 2016

Exemption under 54F is computed as follows: Investment in new asset / Net sale consideration x capital gain subject to maximum of capital gain.

In this case, entire capital gain is invested in new asset and hence entire capital gain is exempt from tax. Source of funds for purchase of new asset is not relevant. Even if borrowed funds are used to buy new asset, exemption u/s 54F is available.

2 Like

CA Harshal Totla (Chartered Accountant) (2229 Points)
Replied 24 June 2016

You are elibile to claim exemption under section 54F. Since you have invested the entire capital gains proceeds hence entire capital gain will be exempt. The amount of investment in residential house may be out of your own funds or out of borrowings,no issue whatsoever in this. However, i would like to inform you that before claiming exemption under this section ensure that you do not own any other residential house property other than this flat as it is an essential requirement of this provision

Ahmad faiz (student) (63 Points)
Replied 24 June 2016

@ Harshal Totla
assessee should not own more than one residential house at the time of purchase property U/S 54F
this house can be in addition to 1st house

CA Harshal Totla (Chartered Accountant) (2229 Points)
Replied 24 June 2016

@ ahmad faiz
Proviso to section 54F provides that assessee should not own more than one residential house other than the new asset, on the date of transfer of the original asset which means he should not own a resi.house other than in which he has invested under this section.

The main object of this provision is to encourage the investment in residential house property by those who does not own house in thier name. As per your interpretation assessee can have one house +one more house (invested as per section 54F) which is not correct my friend.

Ahmad faiz (student) (63 Points)
Replied 24 June 2016

@ Harshal Totla
this is language of the act-
The above exemption shall be available only when the assessee does not own more than one residential house property on the date of transfer of such asset exclusive of one he has bought for claiming exemption under section 54F.

point to bhi notes exclusive of one he has bought for claiming exemption under section 54F
That means existing one house and other one house on which we can take exemption
I respect you sir but you should check it ones again

Ahmad faiz (student) (63 Points)
Replied 24 June 2016

@ harshal totla
sir as per language of act-
The above exemption shall be available only when the assessee does not own more than one residential house property on the date of transfer of such asset exclusive of one he has bought for claiming exemption under section 54F.
new assets is exclusive of old assets
there fore it is clear that there is 2 assets
sir I respect you but please read the provision once again

M.MD.SAJID (OFFICE) (30 Points)
Replied 24 June 2016

Greetings to all

Under the head of income i.e is capital gain the provision is very simple tat is

"The assessee should nt own more than one residential house on the date of transfer of capital aasets"

For better info thus sec. can be disallow if "the assesse should nt purchase or construct another residential house within the stipulated period"

I hv one query with poornima can u explain the logic of the above formula bcoz i forget it if u tell it will be helpful for me

Ahmad faiz (student) (63 Points)
Replied 25 June 2016

sir this formula is applicable to show capital gain exemption in proportion of net sales consideration
i.e if you want to take full exemption of capital gain you should invest full net sales consideration

and if you invest 50% of net sales consideration than exemption will be 50% of capital gain
and that is in same proportion

now question is how can we calculate proportion of investment = [(investment in new assets )÷net sales consideration]x capital gain

CA Ankit sachdeva (Self- Practice) (35 Points)
Replied 25 June 2016

In your case , Section 54 F exemption will allow of RS 21,00,000(75,00,000-54,00,000) and you cannot take the benefit of exemption in respect of loan amount. For your reference case study mention below :

Mumbai ITAT has in (2009) 27 SOT 61 held that if a person has used borrowed money from Bank in purchasing the new residential house and the net sale consideration from sale of long term capital asset is used elsewhere then exemption u/s 54F will not be available,. Facts of this case was that the assessee had LTCG from shares amounting Rs 14,18,890. He took loan from bank to the tune of Rs 15 Lakh and used Rs. 2,29,355 from himself and thus purchased flat for Rs 17,29,355. The AO allowed exemption proportionately to the amount used by assessee from the sale consideration i.e Rs. 2,29,355.

Regards

CA Ankit Sachdeva

ACA, B.COM

ankit.k.sachdeva @ gmail.com