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Exemption on capital gains (54&54f)

CA Vanamala Phani Kumar (Proprietor of M/s Vanamala and Co) (972 Points)

15 December 2011

Hai frnds....!!!!!!

I have a doubt on Sec 54& 54F of IT Act,1961

As per said sections

We can claim exemption on purchase of residential house property.......!!!!!!!!

Here my doubt is can i claim exemption for 1. Renovation 2. Extension 3.Construction Expenses on purchased House property....?????/??

Thanks in advance..!!!!!!!

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11 Replies

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 15 December 2011

Originally posted by : PHANI KUMAR VANAMALA
	Hai frnds....!!!!!! I have a doubt on Sec 54& 54F of IT Act,1961 As per said sections We can claim exemption on purchase of residential house property.......!!!!!!!! Here my doubt is can i claim exemption for 1. Renovation 2. Extension 3.Construction Expenses on purchased House property....?????/?? Thanks in advance..!!!!!!!

if such expenses are capitalized in the previous years with documents, then possible, otherwise not.

CA Vanamala Phani Kumar (Proprietor of M/s Vanamala and Co) (972 Points)
Replied 15 December 2011

@ U S Sharma

Thanks for reply sir....!!!!!

But i am still confusing on this issue about differentiaion between Interior renovation (Ex: Fitting of tales in new house), Extension activity (Ex : Consturct of extra walls in new house)...!!!!!

CA Ketan Waghela (Partner at Elite Educare) (356 Points)
Replied 15 December 2011

As per my knowledge-

These Sec. states “The assessee has purchase a residential house within a period ……. or has constructed a residential house property within a period of …..”It has been clearly mentioned in Sec. 54 that the purchase or Construction of “New House”, renovation or Extension of old house can not be considered as new house.

So, in this Quest. Renovation or Extension of old house can not claimed as exemption, but Construction of new walls in new house can be claimed against CG.

Members please correct me if I’m wrong...

CA Vanamala Phani Kumar (Proprietor of M/s Vanamala and Co) (972 Points)
Replied 15 December 2011

As per provisons we have to take exemption for one house only...!!!!!

For example

Mr.A purchase a new house with cash Rs.10Lakhs by selling old house(Sec 54) or gold (sec 54F)

and he incurred expenses for Renovation(Interior Decoration ) of amt Rs.50,000 and Construct of extra walls of amt Rs.20,000

My doubt is can Mr.A claim exemption of amt Rs.70,000( Rs.50000+Rs.20000) along with Purachse amt Rs.10 laks...?????????

Thaks in Advance

Z ( ) (2960 Points)
Replied 15 December 2011

The cost of land and any buildings on it, is capital expenditure and since this is a new house property for you first time repair/rennovation/extension are of capital nature and hence could be treat as cost of new property.

CA Ketan Waghela (Partner at Elite Educare) (356 Points)
Replied 15 December 2011

According to me,

Mr. A can claim construction of wall but can not claim renovation expenses. As per the Act the cost of new house is exempt. New wall constructed is a construction as per the Act and renovation is not a construction. Renovation Expenses will be deducted from the sale consideration at the time of transfer as cost of improvement. (Indexed if long term)

However, Mr. A will claim first u/s 54 and then u/s54 F.

Please correct me if I'm wrong.

Z ( ) (2960 Points)
Replied 15 December 2011

I agree with Mr. Ketan Waghela

What I read is not in agreement with this case CIT v. Steel Group Ltd

maybe that was not for sec 54 and 54 F

But for

"Construction of new walls in new house can be claimed against CG."

Is it not cost of improvement / modification of house?

Can you cite it ?

CA Ketan Waghela (Partner at Elite Educare) (356 Points)
Replied 15 December 2011

Mr. Z,

I understand & appreciate your opinion but somewhere m not fully satisfied with your above explanation. U may be right. According to me its a debatable point because the sec. is silent on this.

Let oters opine on the same and Thank you Phani Kumar ji for raising this question....