A person is wanting to shift his residence due to certain reason, hence, he sells his old home and from the sale proceeds he purchases another home
In this case the objective of the seller was not only to profit by sale of old house but to acquire another suitable house. If in this case the seller is liable to pay income-tax on capital gains arising on sale of old house, then it would defeat his purpose.
Section 54 can be good way out.
Basic conditions to claim benefit from this Exemption
- The benefit of section 54 is available only to an individual (including NRI) or HUF.
- The residential property sold should be a long-term capital asset ( held for more than 36 Months)
- Within a period of one year before or two years after the date of transfer of old house, the taxpayer should buy another residential house or should construct a residential house within a period of three years from the date of transfer of the old house.
- With effect from assessment year 2015-16 exemption can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only.
- No exemption can be claimed in respect of house purchased outside India.
Amount of exemption
Exemption under section 54 will be lower of following:
A) Amount of capital gains arising on transfer of residential house;
or
B) Amount invested in purchase/construction of new residential house property(including the amount deposited in Capital Gains Deposit Account Scheme)
Capital Gain Deposit Account Scheme.
If till the date of filing the return of income (usually 31st July), the capital gain arising on transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the amount in Capital Gains Deposit Account Scheme in any branch of public sector bank or other bank.
The new house needs be purchased or constructed by withdrawing the amount from this account within the specified time-limit of 2 years or 3 years, as the case may be.
