Definition of purchase of house in Section 54F

Tax planning 1989 views 3 replies

Vipul Jain

Software Engineer

25 Points Joined April 2011

I sold a land in January 2010, and purchased a residential house (which was already completely built) from the sale proceeds. I benefitted from section 54F, and was able to offset most of the capital gains arising from the sale. It is the only home owned by me or my parents, and now my parents are living in the new house (in gurgaon). I changed job to Noida recently, and am now living on rent in Noida.

Now, it is just over one year to that event, and I want to either book a residential flat in Noida, or buy a prebuilt home. Section 54F says that the benefit would not be available if the assessee:
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of two years after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset

Please suggest if I can purchase or book a residential house in Noida without jeopardising the section 54F benefits which I have availed, or I have to wait for total 3 years before that.

One confusing thing is that I have seen condition (ii) as 'one' and 'two' years in different locations.

Replies (3)

Shriram Ramachandran

IPCC Student CWA Inter & Processing off

492 Points Joined October 2010

Hi Vipul

U can buy a new house in Noida. The Law say tat u should not hold more that one house when u sale that Property. As u r buying now after one year is not a problem. But u Should not sell this new house, which u bought from the sale consideration of sale of property for purchase of Noida house. If u sell the property now then exemption which u claimed will be taxable current Year.

Thanks I Hope this info helped u,

R Shriram.

Vipul Jain

Software Engineer

25 Points Joined April 2011

Thanks a lot Shriram. I need few confirmations. Second provision says:

(ii) purchases any residential house, other than the new asset, within a period of two years after the date of transfer of the original asset;

In some places, I have seen it to be written as 1 year. I'm not sure which is correct, 1 year or 2 years.

Secondly, the provision (iii) in the section talks about 3 years waiting in case of construction. If I buy an under construction property from a builder, would it be purchase or construction? Would it matter if the house is delivered to me before three years from date of purchase of original house in 2010?

Alok Siddapur

Consultant

229 Points Joined February 2010

You can purchase a new residential house after Jan 2012 since 2 years from the date of transfer of original asset would have expired.

Otherwise you can start the construction of a new house but you have to see that it is not fully constructed within Jan 2013 to avoid withdrawal of exemption.