When an individual or a HUF transfers any long-term capital asset (other than residential house property) like shares, bonds, etc. they can save capital gain tax on it by investing the net consideration in the purchase or construction of one new residential house property.
To avail benefit the below conditions needs to be fulfilled:
- If you are purchasing a house, it should be made within a period of 1 year before or 2 years after the date of transfer, or if construction is done then the construction should be completed within a period of three years.
- You can own one residential house on the date of transfer of the long-term capital assets, which means you can own two houses, one existing and the other one you are planning to buy or construct.
- You cannot purchase an additional residential house within a period of one year from the date of transfer of the long-term capital asset, or construct an additional residential house within a period of three years from the date of transfer.
- The house purchased or constructed cannot be transferred for three years from the date of purchase or construction.
Example: Ram sold gold in FY 2019-20 for Rs. 20,00,000. It was purchased in FY 2012-13 for Rs. 6,00,000. And Ram purchased his second house property for Rs. 40,00,000 in FY 2019-20. Ram will be able to claim deduction under section 54F as follows:
| Particulars | Amount |
| Sales Consideration | 20,00,000 |
| Less: Index Cost of Acquisition (6,00,000*289/200) | (8,67,000) |
| Long Term Capital Gains | 11,33,000 |
| New House Property Purchase Price | 40,00,000 |
| Section 54F Exemption Amount (40,00,000*11,33,000/20,00,000) =22,66,000 or 11,33,000 | 11,33,000 |
Written by: CA Shiwangi Agarwal
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