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harinath (student)     19 February 2008

sec 54

case: I have 2 residential properties of which i sold 1 for rupees 50lacs costing 5lacs in the year 1990

From the proceeds of the above i constructed 1st floor on the second residential house. whether i get exemption on that or say if purchased land and constructed on that. plz answer for the above



 3 Replies

CA Junaid

CA Junaid (CA)     19 February 2008

In general U can use the proceeds u can get exemption.but once check the conditions under 54 section before taking decision.
Late CA Sampat  Jain

Late CA Sampat Jain (Chartered Accountant)     19 February 2008

Profit on sale of property used for residence. 7754. 78[(1)] 79[80[Subject to the provisions of sub-section (2), where, in the case of an assessee81 being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset 82[***], being buildings or 82alands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (hereafter in this section referred to as the original asset), and the assessee has within a period of 83[one year before or two years after the date on which the transfer took place purchased84], or has within a period of three years after that date constructed, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,— (i) if the amount of the capital gain 85[is greater than the cost of 86[the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. 87[***] 88[(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme89 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. Explanation.—90[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
ca hitesh

ca hitesh   20 February 2008

yes, you can get exemption in both the cases. the second one which is purchase of land and construction of house thereon is eligible for profit under section 54F of the Income-tax Act. However, the first one i.e. construction of 1st floor on the existing house please refer to the case law reported in 89 ITD 239 and 132 ITR 150.

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