read the below section
Section 54 of the income tax act stated that the capital gain from sale of long term property can be saved if someone buy long term residential property or construct residential property from the capital gain amount. In this hub I’ll try to cover all the aspects regarding section 54 of the income tax act.
1- Section 54 benefits are only for individual and H.U.F.
2- Long term residential building or apartment sale only be considered.
3- The amount of capital gain can be saved up to the amount used in
- buy residential house within a year before the date of transfer of old house or in two years after the transfer
- Construct a new house within 3 years after the transfer of old house.
4- Capital gain under section 54 can be saved up to the amount used for buying or constructing new house. If the amount of capital gain is greater than the amount buying a new house, the remaining amount of capital gain will be taxed. For example
CAPITAL GAIN>NEW HOSE = capital gain-new house will be taxed
5- if the new house purchased or construct will be sold within three years from the date of purchase, the calculation of capital gain under section 54 are as under
- cost of new house<capital gain, value of new house=nil
- Cost of new house>capital gain, value of new house=purchase or construction minus capital gain. .
6- The remaining amount of the capital gain as per the number 4 in the points when capital gain is more than buying a new house, then the balance amount should be deposited in the banks under capital gain head. And if it is not deposited in the banks then the amount of capital gain will be taxable in the previous year as long term capital gain.
7- If the amount which deposited in banks will not be used within three years from the transfer of old house wholly or partly, then the remaining amount in the banks will be treated as capital gain.
Few greats points for section 54
1- If a person partly purchase and partly construct then the exemption of section 54 is allowable fully. The main purpose of this section to give relief to buying/construct a new house as per a court case.
2- If an assessee has purchased two or more houses with in time prescribed in section 54 of income tax act, he/she can claim only 1 house for exemptions of section 54 of income tax act.
3- Exemption is also allowable if an assessee buys a share in the property and not the full property.
4- Assessee can start construction of new house before the sale of the old house. Exemption of section 54 is allowable in full.
5- The date of starting constructing new house doesn’t matter; it should be complete within time period of three years.
6- The purchase of new house should necessary to be cash. It can be old debts as well as other monetary consideration.
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