• Long term capital gains exemption

Hi,

I held some shares in Indian company A for more than 3 years. Company A was privately held and not listed on any stock exchange. Recently an American company C bought these shares and I made some money. This amount is X Rs.

Moreover, I held some shares in an American company B for more than 3 years. Company B was privately held and not listed on any stock exchange. Recently the same American company C as above bought these shares. I made some more money. This amount is Y Rs.

With amount X I bought a house. This is my first house. It is exempt from taxation according to 54F of tax laws.

My question is:

If I buy a house with amount Y a year later, will that amount also be tax exempted according to 54F?

Thanks
Asked 5 months ago in Taxation from Noida, Uttar Pradesh
You can also utilise Section 54 (F) to avail of exemption on the long-term capital gain made from the sale of any asset other than a house. However, the sale proceeds should be invested only in a residential property, not a commercial property or a vacant plot of land. To avail of this benefit, you should not own more than one house. So the second house that you intend to buy will not be exempt within the sweep of Section 54F.
Ashish Davessar
Advocate, Jaipur
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445 Consultations
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As per section 54F of IT act buying of one house is exempt from taxes, but no exemption can be claimed for buying  a second house.  
However gains arising from the transfer of any long term capital asset are exempt u/s 54EC if the assessee has within a period a period of six months after the due date of such transfer invested the capital gain in long term specified bonds notified by the government for a minimum period of three years.
Exemption Amount u/s 54EC shall be :  Investment   in   the new assets or capital gain,  which  ever  is lower (Max. Rs.  50 Lacs in Fin. Yr.)
u/s 54F  the LGCT is exempt  if invested in any long term asset (other  than  a residential  house  property ) provided on the date of transfer the taxpayer does not own more than one residential house property from  the assessment year 2001-02 (except the new house) Residential house property.
T Kalaiselvan
Advocate, Vellore
13902 Answers
127 Consultations
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1) If long term capital gains are invested in purchase of residential house within 2 years after date of transfer you can claim benefit under section54F 

2) sale consideration must be invested in purchase of one house only 

3) you should not own more than one house on date of transfer of shares 

4)it excludes house you have purchased for claiming benefit under section 54F 
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
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1) you can buy 2 separate flats from sale proceeds of 2 assets 

2) since you do not own more than one house you meet the eligilibty requirements laid down under section 54F and you can purchase another house 

3) you would not be eligible if you are owner of house and you purchase 2 houses from sale  proceeds of capital assets 
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
5.0 on 5.0
If your own way of understanding the law and its interpretation looks beneficial to you then you may proceed with your thoughts which may appear proper to you. 
Firstly you are not selling the immovable property, second thing you should understand that you re-invest the 2nd LTCG in buying an immovable asset/residential property while you already own one purchased after availing exemption in a similar provision, whether you will be eligible for the same privilege once again with a different set of capital gains. 
Your auditor may be having a practical solution with a different idea for re-investment.
T Kalaiselvan
Advocate, Vellore
13902 Answers
127 Consultations
5.0 on 5.0
The Income Tax Act has laid out exemptions under Section 54 and Section 54F to help taxpayers save tax on capital gains.

(1)Exemption under Section 54 is available on long-term Capital Gain on sale of a House Property.

(2)Exemption under Section 54F is available on long-term Capital Gain on sale of any asset other than a House Property.
To reiterate, both the exemptions are available only on long-term capital gains.
If you are not able to invest the specified amount in the manner stated above before the date of tax filing or 1 year from the date of sale, whichever is earlier, deposit the specified amount in a public sector bank (or other banks as per the Capital Gains Account Scheme, 1988).
Under section 54F To claim full exemption the entire sale receipts have to be invested.
n case entire sale receipts are not invested, the exemption is allowed proportionately. 
[Exemption = Cost the new house x Capital Gains/Sale Receipts]
You should not own more than one residential house at the time of sale of the original asset. Exemption in this case will be proportionate to the amount invested in relation to the net sale consideration.The time-frame for investment is the same as that for capital gains from residential property.
You should not own more than one residential house prior to this investment.
The deducted capital gain (from sale of land) becomes taxable if you buy another house (other than the new one) within two years of the transfer of the original asset or construct a new one within three years.
If the new house is sold within three years, the deduction claimed will become taxable as a long-term gain.
While calculating capital gains, expenses related to transfer / sale like advertisement expenses, brokerage expense, Stamp duty, Sale deed registration fees, Legal (lawyer) expenses etc., can be deducted from the Purchase price.
T Kalaiselvan
Advocate, Vellore
13902 Answers
127 Consultations
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1) the 2 sales of shares at interval of 6 months would be considered 2 different asset sales 
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
5.0 on 5.0
 an assessee is entitled to claim exemption on long-term capital gains tax, on sale of a property or any other asset, if s/he purchases a residential house. 

2) n Gita Duggal case (in 257 CTR 208), the Delhi High Court held that the expression ‘a residential house’ should be understood in a sense that building should be a residential one and that the word ‘a’ should not be understood to indicate a singular number. The court interpreted the word ‘a residential house’ to mean any residential house, in contradistinction to any ‘commercial house property’. Consequently, tax payers were able to claim long-term capital gains tax exemption by investing in more than one house property

3)  in the case of ITO vs Suseela M Jhaveri 26 (ITAT Bom). It was held that if the assessee has purchased more than one residential house and the houses are in different locations, then, the assessee could claim exemption only in respect of one house. However, the taxpayer would be entitled to exemption in more than one unit, if the two adjacent or continuous units are converted into one residential house, and the two units are intended to be used as a single house for the family’s residence.

4) could not find any case laws  where where a person sold multiple share assets and bought multiple residential properties at the same time
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
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you can buy second house with sale proceeds of 2nd asset sale which are in nature of long term capital gains 

since you do not own more than one house you meet the eligilibty requirements laid down under section 54F and you can purchase another house 
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
5.0 on 5.0
Firstly understand that there is no clause preventing you from acquiring a second house and claim exemption under LTCG.
But there is no clause permitting you to claim exemption if you claim    exemption on both the first and second houses during purchase of 2nd house even buy this 2nd house more than 2 years after you  bought the first house.
T Kalaiselvan
Advocate, Vellore
13902 Answers
127 Consultations
5.0 on 5.0

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