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.
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 8 years ago in Taxation
10 Answers
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.
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
Hi, My actual question is this: if I sell 2 different assets, can I buy 2 corresponding houses with the sale proceeds of the 2 assets and still get tax exemption on both the houses? Here are some relevant case laws found at http://www.saprlaw.com/taxblog/s54.pdf: "Sale proceeds from multiple properties invested in multiple properties: In the case of Shri Humayun S. Rangila v. ITO38 ( ITAT Bom), the assessee sold two flats and on the sale proceeds purchased two new flats. It was held that the exemptions will be available to any number of residential houses so long as other conditions under section 54are fulfilled. Exemption would be available to sale of any number of residential properties as long as there are corresponding investments. The aggregate capital gain cannot be calculated. Deduction must be calculated on each set of sale and investment in the combination most beneficial to the assessee. In the case of Rajesh Keshav Pillai v. ITO39( ITAT Bom), the assessee sold two flats and capital gain from the sale of two flats was invested in two flats. It was held that where more than one house was sold and purchased, the exemption can be claimed only on one to one basis and each set of sale and purchase have to be treated separately. The Court in DCIT v Ranjit Vithaldas40followed this decision. Conclusion : It is apparent from the reasoning used in the above cases that the benefit under Ss. 54 & 54F can be claimed as long as every transfer of residential property has a corresponding investment in another residential property. Hence, more than one residential property can be transferred but there must be an equal number of investments" Please keep in mind that when buying the 2nd house with the sale proceeds of the 2nd asset sale I still do not own "more than one house". Hence I am not yet breaking the exemption clause in my understanding. Thanks.
Asked 8 years ago
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
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.
Hi, Thanks for your answers. I have a related question. Let us say that I held 100 shares of my company for more than 4 years. I sold 50 of them 6 months back. I sold another 50 of them today at a different price than the first 50. For the purpose of LTCG exemptions, will these 2 sales be considered 2 different asset sales? Thanks.
Asked 8 years ago
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.
1) the 2 sales of shares at interval of 6 months would be considered 2 different asset sales
Hi, It seems Advocate T Kalaisevan is right. While I can find case laws pertaining to multiple residence sales, I can not find case laws pertaining to multiple shares asset sales used for buying multiple properties being exempt from tax. Is there any case law example where a person sold multiple share assets and bought multiple residential properties at the same time? Thanks.
Asked 8 years ago
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
Hi, I understand these 3 main conditions for exemption of LTCG tax: 1) I can claim exemption on only one house. 2) I can not buy another house for the next 2 years. 3) I can not own more than one residential property when buying this house. Keeping the above 3 points in mind, can I do the following and still claim exemption on the 2nd house as well: 1) I buy a 2nd house with the sale proceeds of a 2nd asset sale which are also long term gains. 2) I buy this 2nd house more than 2 years after I bought the first house. Please let me know which clauses prevent me from claiming exemption on both the first and second houses if I do the above. In my understanding during purchase of 2nd house, I still did not own "more than one residential house". Thanks.
Asked 8 years ago
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
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.