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Capital Gain on sale long-term Capital Asset not to be charged in case of investment in the residential house (section 54F).

February 10, 2022
in Tax
capital
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:

ParticularsAmount
Sales Consideration20,00,000
Less: Index Cost of Acquisition (6,00,000*289/200)(8,67,000)
Long Term Capital Gains11,33,000
New House Property Purchase Price40,00,000
Section 54F Exemption Amount (40,00,000*11,33,000/20,00,000) =22,66,000 or 11,33,00011,33,000

Written by: CA Shiwangi Agarwal

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Read Next: Benefits extended under the Income-tax Act, 1961 for promoting education.

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    About Us

    MyGoalMySip is an Online Mutual fund investment platform powered by Prudent Wealth. As an investor, it might be hard to find the perfect investment opportunity; therefore, we’re here to help you make an informed decision.

    Our goal is to educate people and make them financially literate, and at the same time guide you in your investment journey, in short MyGoalMySip is your investment buddy.

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