Tuesday, January 12, 2010

Capital Gain Exemption 54 F :available if already have a house?


on Tuesday, January 12, 2010

A very interesting question recently received in comments .The answer to the comment may be useful for all the readers so I am publishing the comments received/given on the above subject.

qus: I also want to know if the exemption u/s 54F could be claimed if the assessee has existing residential property, other than the one which he is intending to buy. Section 54F relates to "a residential property" "A" includes many in judicial understanding.

But I want to know if there is any decided case law at high court / supreme court / any other valid circulars / notification that benefits the assessee in the above circumstances.


Ans:Relevant part of proviso to section 54 F is reproduced here under

" provided that noting contained in the sub section shall apply where
(a)the assessee
(i) owns more than one residential house other than the new assets on the date of the transfer of the original asset or
(ii)...................."

Clause (a) (i) to the proviso of section 54 F have been inserted by finance act 2000,and after this amendment person who owns a one house other than new house can also claim exemption of capital gain u/s 54 F.

So i thing "a residential House" clause does not apply in this section as there a word " one residential house" has been used.so In my opinion act is very mush clear and under section 54 F person can purchase/construct new house if he already has a one residential house on the date of transfer of the old long term capital asset.

qus:I yet to understand the view point.

Section 54 covers situation of residential property sold and residential property acquired Whereas Section 54F covers situation of other than residential property sold but residential property acquired,In our case, this vacant land and residential property being acquired.

Section 54 and Section 54F both uses, a residential house

Section 54 don't have any rider clause such as provided.Whereas section 54F has a rider clause
The clause for subsection 54F is reproduced.

" provided that noting contained in the sub section shall apply where

(a)the assessee
(i) owns more than one residential house other than the new assets on the date of the transfer of the original asset or
(ii)...................."

So from the above, it clearly says subsection 1 is not applicable when the condition following are applicable. And accordingly is it not clear that the exemption is not applicable for the present case where the assessee already has one property.?

Where do one infer that even if the assessee has one residential property can stand to benefit from this section?.

We may also note that, this rider clause is not there in section 54 and that is one reason that the assessee is entitled to claim exemption for reinvestment even if he has a residential house at that point.

Am i missing your point.?
regards
sathya

Ans:Before I can Give my comment on this issue ,I am giving what I have understood from your comment .

you want to say that section 54F is not very clear when the assessee already have one residential house on the date of transfer of long term asset other than the new house intended to be purchased.and hence doubtful when second house is being purchased.

But according to me the section is very much clear and proviso is applicable where third house is being purchased and exemption is available where second house is purchased to save the capital gain u/s 54 F and there is no need to follow case laws in this regard as the section is already clear .

As I have stated above earlier that amendment has been done in proviso to the section 54 F By finance which has been done to facilitate the person who already have one house other then the new house .Kindly have a look on memorandum t the new clause inserted by the finance act 2000 reproduced here under.

" Section 54F of the Income-tax Act exempts levy of tax on long-term capital gains arising from transfer of any long-term capital asset (not being a residential house), if invested in a residential house. There is, however, a stipulation that the above exemption cannot be availed of, if there is a house in existence on the date of transfer or if the person goes for a second house within the stipulated period. The above condition stands in the way of a large number of taxpayers from availing of the deduction under section 54F. The existing house may be a small house or a tenanted house which is difficult to sell in view of the stringent tenancy laws or a house which cannot be sold because of non-availability of buyers or slump in market prices. Therefore, it is proposed to amend section 54F of the Income-tax Act to provide that the deduction under this section may be available to an individual or Hindu undivided family as long as he has one and not more than one house existing on the date of transfer. Other conditions would remain the same. The proposed amendment will take effect from 1st day of April, 2001 and will, accordingly, apply to the assessment year 2001- 2002 and subsequent years."

The above memorandum is very much clear ,and I hope it will also resolve ur query .

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  1. With regard to Mr.Sathya's query the position regarding section 54F is as follows:

    1. Section 54 F is applicable on the arising of capital gain on the sale of a long term capital asset other than a house property, i.e land, jewellery etc.,

    2. Section 54 F gives relief to long term capital gain tax on the following conditions.
    a. at the time of realising the capital gain the assssee should not be in possession of more than one house prpperty. Reading postively the assessee can at the time of sale of his asset other than house property, forclaiming exemption under section 54 F is allowed to be an owner of one existing house property.
    b. the section further states that the assessee can for the purpose of this section could have invested one year earlier or two years hence acquired a house property or three years hence construct a house property.

    thus after the sale of the capital asset the assessee ideally can possess two hosue property, one he held at the time of the sale of the capital asset and the other as an investment for offsetting the capital gain.

    That is the end of it. The assessee should refrain from investing in any house property for the next two years or three years as the case may be for buying or constructing.

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  2. SIR I WANT TO KNOW THAT FOR AVAILING EXEMPTION US 54F, IS IT MANDATORY FOR THE ASSESSEE TO OWN ONE RESIDENTIAL HOUSE AT THE TIME OF TRANSFER

    ReplyDelete
    Replies
    1. No ,it is not mandatory to have one house at the time of transfer of the long term asset

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  3. For reinvestement in property has to to be in whose name single or even joint name of husband wife is elegible for capital gain exemption

    ReplyDelete
  4. Dear Sir,

    We have booked a flat by paying the booking amount to the builder, however due to insufficient funds for the flat and no loan available, we are planning to sell a plot.Please let me know.

    - Do we need to open a Capital Gain Account to avail the tax exemption under Section 54F, in order to deposit the amount from the sale of the plot?

    - Is it mandatory to have the registry of both the flat and plot in the same year?

    - As I'll be getting the amount from the sale of plot in 2-3 installments.Can I transfer the amount from the sale of plot to the flat builder in installments in 18 months time?

    Thanks lot in advance.

    ReplyDelete
    Replies
    1. I assume that Capital gain from Plot sale is long term capital gain and you have only one house other than new flat.

      Point wise reply is given below.

      1.You have to open the account CAGS only if amount equal to value of sale of plot is not utilized in new flat before return filing date for fy 2012-13(31.07.2013).

      2.No , not mandatory .

      3. Yes ,you can transfer money to builder in installment but if it is beyond 31.07.2013 then you have to open CAGS and have to deposit unutilised money in CAGS.

      4.New House must be constructed with in three years from transfer of Plot

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    2. Thanks Raja Babu for the reply. Appreciate your help.

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  5. Few more questions just came up.Please let me know the following:

    - Is it mandatory to do the regitry of the Plot first (sale of plot for Capital Gains) and then register the new purchased flat?

    - The plot was purchased on my mother's name.So it required the newly purchased flat also should be on her name? Will there be any implications, if the flat is registered on my brother's name?

    - Will there be any interest gain or Tax deductions for the unutilized amount deposited in the CAGS account? ANd how much would be the interest or the tax?

    Thanks once again!

    ReplyDelete
  6. Any updates on the queries, please?

    Thanks.

    ReplyDelete
  7. What if assessee has one house in his own name & one in joint name, he sells his assets. Can he get exemption u/s 54F?

    ReplyDelete
  8. We are four sisters having a site of 4800 sq feet ( cost of purchase of site was Rs.320000, purchased on 10-12-2000 ) jointly in Bangalore. We gave the property to joint venture and in return of site we each got one flat in an apartment. (Market price of 4 flats now is 80 Lakhs)
    We have made a partition deed and one flat has been in my name and it has been given to rent.
    I do own 50% share in existing house where i reside from past 25 years.

    Now my question is if I should pay the capital gains now or at the time i sell the flat.


    Regards

    Ramya

    ReplyDelete
    Replies
    1. You may refer recent case judgement by Punjab and Haryana High Court
      https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Documents/india-aug16-2013-no3.pdf

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