26/02/2019
Capital gains When and to what extent exempt from tax :-
1. The Income Tax grants total/ partial ememption of capital gains under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB and 54H.
Capital gains arising from the transfer of residential house property [See 54] :-
The provisions of section 54 are given below :-
CONDITIONS :- The following conditions should be satisfied -
• The house property is a residential houseT whose income is taxable under the head 'Income from House Property and transferred by an individual or a Hindu undivided family.
• The house property (maybe self-occupied or let out) is a long-term capital asset (ie., it must be held for period of more than 24 months before sale or transfer)‘.
• To avail exemption under section 54, the assessee will have to purchase or construct a residential be (from the assessment year 2015-16 only one residential house can be purchased or constructed). For this purpose, house can be purchased within a period of one year before the transfer (or within 2 years aftter the date of transfer). Alternatively, house can be constructed within 3 years from the date of transfer. In the case of compulsory acquisition, the above time-limit of 1-year, 2-year and 3-year is applicable from the date of receipt of compensation (whether original or additional).
• The new house property which is purchased or constructed within the time-limit specified above shouid be situated in India (applicable from the assessment year 2015-16).
AMOUNT OF EXEMPTION If the amount of the capital gain is less than the cost of the new house property the entire amount of capital gains is exempt from tax. On the other hand, if the amount of the capital gains is greater than the cost of the new house property'. the difference between the amount of capital gains and the cost of the new house is chargeable to tax as capital gains.
CONSEQUENCES IF THE NEW HOUSE IS TRANSFERRED WITHIN 3 YEARS If the new house property is transferred, within a period of 3 years from the date of its purchase or construction, the amount of capital gains arising therefrom, together with the amount of capital gains exempted earlier, will be chargeable to tax in the year of sale of the new house property.
To attain this, it has been provided that if the new house is transferred within 3 years from the date of its acquisition or date of completion of construction, the amount of exemption under section 54 shall be reduced from the cost of acquisition of the new house, while calculating short-term capital gain on the transfer of the new asset.
SCHEME OF DEPOSIT IN RESPECT OF EXEMPTION UNDER SECTION 54 :- Where the amount of capital gain is not appropriated or utilised by the assessee for purchase or construction of the new residential house before the due date of furnishing the return of income, it shall be deposited by him on or before the due date of furnishing the return of income, in the Deposit Account in any branch (except rural branch) of a public sector bank or IDBI Bank in accordance with the Capital Gains Accounts Scheme, 1988. The amount already utilised for the purchase or construction of the new house together with the amount so deposited shall be deemed to be the amount utilised for the purchase of a new house under section 54. If the amount deposited is not utilised fully for purchase or construction of the new house within the stipulated period, then the amount not so utilised shall be treated as long-term capital gain of the previous year in which the period of three years from the date of transfer of the original asset expires'. In such case the assessee shall be entitled to withdraw such amount in accordance with the aforesaid scheme.
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