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Section 54F of Income Tax Act, 1961

Today we are discussing on Section 54F of Income Tax Act, 1961  – This section relates to the exemption provision of capital gains. In case  sale of Long term Assets assessee will  get the  exemption on purchase of Residential house property.

Who can claim exemption under Section 54F of Income Tax Act, 1961

This Exemption is available only to an Individual & Hindu undivided Family. exemption u/s 54F is not available to the company, firm and LLP.

Meaning of Section 54F of Income Tax Act, 1961

Now we are going to discuss this section in brief.According to section 54F of the Income Tax Act,1961: Any long term capital gain arising on the sale of any long term Assets other than a residential house property shall be exempted in full if the entire sale consideration of such sale is invested in-

  1. Construction of a residential house within 3 Years from the date of such transfer (Sale consideration should be invested in construction of only one residential house property).
  2. Purchase of residential house property within 1 year before or 2 year after the date of such transfer( Sales consideration should be invested in Purchase of only one residential house).

Condition for claiming exemption under Section 54F of Income Tax Act, 1961

The Exemption u/s. 54F is only available to those assessee which doesn’t own more than one residential house property on the date of transfer of such long term asset excluding the one which he has purchased for claiming the exemption under this section.

How much exemption available  under Section 54F of Income Tax Act, 1961 if part of sale consideration is invested.

The Exemption shall be allowed proportionately if the whole of the sales consideration is not invested & only a part of sales consideration is invested.

Exemption allowed u/s. 54F= Capital Gain(above)*(Amount Invested/Net Sales Consideration)

The above Section can be well understood with the following example:

Suppose an Individual Having a Long term asset & now he sold the same asset on 1st April, 2013 for Rs. 15,00,000/-. The Indexation cost of the asset is Rs. 8,00,000/-.

Total Long Term Capital Gain = 1500000-800000

= Rs. 7,00,000/-

To get the full exemption he has to invest the full sale consideration of Rs. 15,00,000/- in a construction of a house property before 31st March, 2016 or purchase the new residential house property before 31st March, 2015 & if he had already purchased the residential house property on or after 1st April, 2012 then same invested amount can be adjusted.

If the Only  part amount invested say only Rs. 10,00,000 is invested then Proportionate exemption is available i.e.

Amount of Exemption= 700000*(10000000/1500000)

= Rs. 4,66,667/-



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