Capital Gains Exemption On Sale House Property
Applicable Assessee
This section is applicable to Individual or HUF.
Nature of Capital Asset
- Exemption is allowable for only on Long Term Capital Asset.
- Exemption is applicable for transfer Residential house property being building and land appurtenant there to.
Time lime of purchased or constructed
- New asset i.e one residential house property acquired in India.
- Purchase: Purchase the residential house property within one year before or 2 years after the date of transfer.
- construction: Complete the construction within 3 years after date of transfer.
Amount of Exemption
Amount of exemption is available in following manner
1. Capital gain Amount (or)
2. Cost of new asset/ Deposit amount in capital gain scheme
which is lower.
Transfer of New Asset
New asset transferred within 3 years from date of purchase or construction, then cost of acquisition of new asset reduced by exempted capital gain.
Exemption available under section 54
Section 54 of the Income Tax Act allows the lower of the two as exemption amount for a taxpayer:
- Amount of capital gains on transfer of residential property, or
- The investment made for constructing or purchasing new residential property
- The balance amount (if any) will be taxable as per the income tax act.
Capital Gains Account Scheme
If the assessee is unable to purchase or construct property before the due date of furnishing of return of income for the year of transfer and still wants to save tax he or she can invest / deposit all the unutilized capital gain proceeds of the old house property in Capital Gains Deposit Scheme. In this way the new property can be purchased later and the capital gains from the proceeds of sale of old house property will not be taxable too.
Various conditions are specified for deposition in the Capital Gains Account Scheme in the Income Tax Act. They are:
- This can be done in authorised/approved bank branches. Rural branches of banks are not included.
- The deposition has to be done before the due date for filing income tax returns.
- The deposited amount has to be utilized to purchase/construct the house as per the provisions of the law.
Consequences if new House Property is transferred within 3 years
- The assessee buys or constructs a new house within the prescribed time limit after selling old house property which is a long term capital asset, he or she can claim exemption under section 54.
- Further, if he or she wants to sell the new property owned by him or her, the individual must hold the property for a minimum of three years as per section 54.
- If he or she sells before the stipulated time the benefit given to him or her will be withdrawn and he or she has to pay the tax on capital gains exempted.
- In case, if the new house property is sold within three years of its purchase/ construction then two scenarios can happen. To calculate the taxability there are two cases:
- If the cost of the new house property is less than the capital gains calculated from the sale of the original house property.
- In this case, the capital gain exempted while transfer of property will now be taxable and cost of acquisition of new assets will be considered zero.
Example-1
Mr Santosh has sold a long-term residential property in August 2017 for which the capital gains amounted to Rs 50,00,000. In October 2017, he purchased a residential house property worth Rs 30,00,000. Further, he sold the new residential house property (Purchased in October 2017) in April 2018 for Rs. 25,00,000.
Computation of his taxable capital gains will be as follows:
For Financial Year 2017-18
| Particular | Amount |
| Capital Gain On the Sale of house property | 50,00,000 |
| Less: Exemption u/s 54 on purchase of new residential property | -30,00,000 |
| Taxable Long Term Capital Gain (FY 2017-18 | 20,00,000 |
For Financial Year 2018-19
| Particulars | Amount |
| Sale Consideration | 25,00,000 |
| Less: Expenses on transfer | NIL |
| Taxable Short-term Capital Gains (Financial Year 17-18) | 2500000.00 |
Example-2
Mr Santosh has sold a long-term residential property and the capital gains is Rs 35,00,000 in June 2015. In October 2015, he purchased a new residential house property of Rs 50,00,000. In January 2017, he sold the new residential Property for Rs 65,00,000.
Computation of his taxable capital gains will be as follows:
For Financial Year 2015-16
| Particular | Amount |
| Capital Gain On the Sale of house property | 35,00,000 |
| Less: Exemption u/s 54 on purchase of new residential property | 35,00,000 |
| Taxable Long Term Capital Gain | 0 |
For Financial Year 2016-17
| Particulars | Amount |
| Sale Consideration | 65,00,000 |
| Less: Expenses on transfer | NIL |
| Less: Cost of acquisition of new house (50,00,000-35,00,000) | 15,00,000 |
| Taxable Long Term Capital Gain | 50,00,000 |
Note
If Long Term Capital Gain is up to 2 Crs then Assessee can acquire Two residential house properties in prescribed time limit. This benefit of house property is available only once in life time.
