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How To Save Capital Gain Tax On Sale of Residential House Under Section 54 - Taxguru - in

Section 54 of the Income Tax Act provides an exemption on capital gains tax for the sale of a residential property if the amount gained is utilized for purchasing or constructing another residential property. The new property must be bought within 1 year before or 2 years after selling the old property, or constructed within 3 years of sale. A maximum of two residential properties can be purchased by utilizing capital gains up to Rs. 2 crores without paying tax. If the new property is sold within 3 years, the tax exemption is withdrawn. This section encourages investment in residential real estate by exempting capital gains tax under certain conditions.

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109 views2 pages

How To Save Capital Gain Tax On Sale of Residential House Under Section 54 - Taxguru - in

Section 54 of the Income Tax Act provides an exemption on capital gains tax for the sale of a residential property if the amount gained is utilized for purchasing or constructing another residential property. The new property must be bought within 1 year before or 2 years after selling the old property, or constructed within 3 years of sale. A maximum of two residential properties can be purchased by utilizing capital gains up to Rs. 2 crores without paying tax. If the new property is sold within 3 years, the tax exemption is withdrawn. This section encourages investment in residential real estate by exempting capital gains tax under certain conditions.

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Roster Baba
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We take content rights seriously. If you suspect this is your content, claim it here.
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HOW TO SAVE CAPITAL GAIN TAX ON SALE OF

RESIDENTIAL HOUSE UNDER SECTION 54


AUTHOR :ADV ADITYA NARAYAN PARIDA

https://taxguru.in/income-tax/save-capital-gain-tax-sale-residential-house-section-54.html

Under section 54 of Income Tax Act, exemption is permitted to a taxpayer (individual & HUF only) who sells
his residential house (Long Term Capital Asset-LTCA) and utilizes the amount of capital gain out of it to acquire
another residential house. Long term capital asset is a property held for more than 24 months.

Section 54 of Income Tax Act: Conditions to be satisfied to claim


Exemption for House Purchase
(a) The new house should be purchased within a period of 1 year before or 2 years after the sale of old house, or
should be constructed within a period of 3 years after the sale of old house. In case of compulsory acquisition,
the period of acquisition or construction will be determined from the date of receipt of compensation (whether
original or additional).

(b) The assessee should not be in possession of more than one residential house on the date of sale of the old
house.

(c) W.e.f FY 2021-22, Exemption can be availed on purchase/construction of maximum number of two
residential houses by utilizing the capital gain, if the gain from sale old house does not exceeds Rs. 2 crores. If
the assessee exercises this option, he shall not be entitled to exercise this option again for the same or any further
assessment year.

(d) In case an assessee utilizes the capital gain amount in purchasing a plot of land and constructing a residential
house on it, both the amount of money spent on purchase of land along with cost of residential house
construction will be considered as an investment in residential property for the purpose of claiming the
exemption under this section.

(e) Exemption under section 54 will be lower of

(i) amount of capital gains arising on sale of residential house; and

(ii) Amount invested in purchase/construction of new residential house (including the amount deposited in
Capital Gains Deposit Account).

(f) In case the assessee is unable to spend a part or full amount of capital gain until the due date of ITR filing for
the year in which the old house is sold, he needs to deposit the unspent amount in a Capital gain deposit a/c in
any public sector bank in accordance with capital gain deposits account scheme 1988. The new house can be
purchased or constructed by withdrawing the amount from the said account within the specified time-limit of 2
years or 3 years respectively. Otherwise, capital gain tax will be levied on that unspent amount of capital gain.

(g) If a taxpayer purchases/constructs a new house and claims exemption under section 54 and transfers the new
house within a period of 3 years from the date of its acquisition/completion of construction, then the benefit
granted under section 54 will be withdrawn. This withdrawal is done by deducting the exempted capital gain
from the cost of acquisition of this house while computing capital gain on the sale of the house.

(h) Exemption under this section can be claimed only in respect of house property purchased/constructed in
India.

(i) Tax on short term capital gain (property held for less than 24 months) shall be calculated based on the
person’s income tax slab rates and the basic exemptions are allowed accordingly.

Conclusion: Section 54 of the Income Tax Act encourages investment in residential properties by providing an
exemption on capital gains. Taxpayers need to adhere to the specified conditions and timelines to avail of this
benefit successfully. Understanding the provisions of this section can help individuals and HUFs make informed
decisions while selling and acquiring residential properties.

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