In case an individual and HUF transfer any long-term capital asset (other than the residential house the income of which is taxable under the head ‘Income from house property’) and constructs a residential house within 3 years after the sale or purchases another residential house within one year before or two years after the sale, so much of capital gain shall be exempted as is in proportion of amount invested to net consideration.
Exemption u/s 54-F shall be allowed if following conditions are fulfilled.
(i) The assessee is only an individual or a H.U.F.
(ii) The assessee does not own more than one residential house on the date of transfer of the above mentioned assets.
(iii) The assessee transfers above mentioned asset or assets (other than a residential building) and there is a long term capital gain.
(iv) The assessee invests the net sale consideration of above mentioned assets to construct a residential house within 3 year of the sale of the asset or purchases an already built house within one year before or two years after the sale of the above mentioned asset.
(v) The assessee is required not to purchase another residential house with in a period of one year after or constructs within a period of 3 year after the date of transfer of the above mentioned asset/assets.
Amount of Exemption :
In case assessee invests the full amount of net consideration in the purchase or construction of a residential house, then full amount of long term capital gain shall be exempted. But if the assessee invests only a part of the net consideration then only a proportionate part of Capital gains shall be exempted i.e. so much capital gain shall be exempted as it is in proportion of amount invested to net consideration.
In case assessee invests full net consideration of 10,00,000 (or even invests more than net sale consideration), then the full amount of capital gain of 6,00,000 shall be exempted but in case he invests only 80% of net consideration, then only 80% of capital gain shall be exempted and the balance will be taxable.
Amount Deposited In Capital Gain Deposit Account Scheme
If the amount of net consideration is not re-invested to purchase or construct a residential house upto the last date of filing of return of income u/s 139, then the same amount should be deposited in the capital gain deposit account scheme with a specified bank upto the last date of filing of return. The proof of deposit is required to be attached with the return of income of that year.
The amount deposited under this Scheme must be utilized to purchase a construct a residential house within the specified period. If amount deposited is not utilized wholly or partly for the purchase or construction of a residential house within stipulated period, then the amount which remains unutilized shall be treated as capital gain of the previous year in which the period of 3 years from the date of the transfer of the original asset expires.
The assessee shall be entitled to withdraw the unutilized amount in accordance with the scheme aforesaid.
Claim of exemption u/s 54F if more than one asset is sold
The assessee can claim exemption u/s 54F in such a manner, which is most beneficial to him. In this context he has two options:
(i) he may calculate the exemption u/s 54F for each asset separately and then compare the most beneficial alternative ; or
(ii) he may calculate the exemption in following manner and then choose the beneficial alternative.
(a) Calculate capital gain for each asset separately.
(b) Calculate percentage of LTCG to net consideration.
(c) Allow exemption u/s 54F out of LTCG of that asset whose percentage is highest.
(d) If amount invested in house is more than net consideration of one asset, the balance investment is to be taken up out of that asset whose percentage is next highest and so on.