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Exemption u/s. 54 of it act

CA Devanand Jethanandani (CA) (8003 Points)

11 January 2014

A person has taken the benefit of exemption u/s 54 (exemption from long term capital gain tax on sale of residential property by investing sale consideration in acquiring a new residential property) in FY 2012-13.

In FY 2013-14 he sold the new residential property (i.e. within 3 years of acquisition) and from the sale consideration again he has purchased a new residential property.

My question is what will be the tax implications in FY 2013-14 ? While calculating short term capital gain in FY 2013-14 the amount of long term capital gain (which was exempted in FY 2012-13) be deducted from purchase cost ?

Thanks,

CA. Devanand Jethanandani

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6 Replies

Mihir (Wealth Manager) (5293 Points)
Replied 12 January 2014

Exemption u/s 54 availed by selling a property in FY 2012-13

The new property bought in FY 2012-13 was then sold in FY 2013-14,within 1 year.

Again the sale consideration invested in another property in FY 2013-14.

There is a short term capital gain. And exemption u/s 54 is not available in case of short term capital gain. You are required first compute the short term capital gain, and the same shall be taxable at normal tax rates.

Wait for more replies.

1 Like

JAINENDRA JAIN (ACS/CA) (1668 Points)
Replied 12 January 2014

Exempt given under 54 for firdt sales will be withdrawn and the same will be deducted in 2nd sales.

AVTAR SINGH (Expert) (1873 Points)
Replied 12 January 2014

After claiming exemption u/s 54, the property (say xyz) purchased in FY 2012-13 was to be retained for a period of 3 years. But you sold it in FY 2013-14. It will have two implecations.

1. The amount of exemption claimed in FY 2012-13 will have to be reduced from the cost of house property xyz purchased in that year i.e. the cost shall be reduced by the amount of the capital gain claimed as exempt.

2. The Short Term Capital Gain on sale of property xyz shall be taxable in FY 2013-14 after deduction of reduced cost from the sale consideration of the property xyz.

For example If the LTCG claimed exempt in FY 2012-13 was Rs.100 and the cost of property xyz purchased in FY 2012-13 was 175 and the sale price is Rs.200 in FY 2013-14, the short term cap. gain in FY 2013-14 would be Rs.125 i.e. Rs.200 minus 75 (175-100).

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GAUTAM KUMAR DARUKA (SEMI QUALIFIED CA) (24 Points)
Replied 12 January 2014

I agree with your answer but this benefit is available to individual or huf. Purchase consideration is reduced by exemption taken and differece between sales consideration and cost of acquisition is STCG. Income tax is charged at normal rate of income tax

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Arif Ali (Apt Co Advisory) (1230 Points)
Replied 13 January 2014

I also agree with above answer

CA Devanand Jethanandani (CA) (8003 Points)
Replied 13 January 2014

This query is clear to me now,

which can be concluded as under,

Benefit of exemption taken in FY 2012-13 will be withdrawn in FY 2013-14 (by reducing cost of purchase with the amount of exemption taken in FY 2012-13.)

And the benefit of exempiton u/s 54 will not be avaiable by reinvesting sale consideration in residential property in FY 2013-14, because there is short term capital gain in FY 2013-14 and not long term capital gain.

Thanks to All,

Regards,

CA. Devanand Jethanandani