Tax Planning through Investments
SECTION 54F
EXEMPTION FROM
CAPITAL GAIN ON
TRANSFER OF
CERTAIN CAPITAL ASSETS
IN CASE OF
INVESTMENT INRESIDENTIAL HOUSE.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
1
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
2
(A). TAXPAYER CATEGORY - SECTION 54F
This exemption is available to taxpayers, being individual or Hindu
undivided family.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
3
(B).CONDITIONS- SECTION 54F
1. Nature of Capital Gains on sale of original asset criteria —
The capital gain arises from the transfer of any long term capital asset.
2. Original asset transferred criteria — Exemption is available for
any long term capital asset not being a residential house.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
4
(B).CONDITIONS- SECTION 54F
3. New asset acquired criteria — The assessee has, within a
period of 1 year before or 2 years after the date on which the transfer
took place purchased, or has within a period of 3 years after that date
constructed, a new residential house.
4. The assessee does not own more than 1 residential house, (other
than the new residential house) on the date of transfer of the original
asset.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
5
(B).CONDITIONS- SECTION 54F
5. The assessee, shall not purchase any residential house, (other
than the new residential house), within a period of 2 year after the
date of transfer of the original asset. However wherein the assessee
defaults, the amount of capital gain exempted under this section shall
be deemed to be long-term capital gains of the previous year in which
such residential house is purchased.
6. The assessee, does not construct any residential house,
(other than the new residential house), within a period of 3
years after the date of transfer of the original asset.
However wherein the assessee defaults, the amount of
capital gain exempted under this section shall be deemed to
be long-term capital gains of the previous year in which such
residential house is constructed.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
6
(B).CONDITIONS- SECTION 54F
7. Non-transfer of new asset for 3 years criteria — New
residential house so purchased or constructed shall not be transferred
within a period of 3 years from the date of its purchase or construction.
However if this new residential house is transferred within this period
then the amount of capital gains exempted under this section shall be
treated as long-term capital gains of the previous year in which such
new residential house is transferred.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
7
(B).CONDITIONS- SECTION 54F
8. Capital Gains Accounts Scheme — The exemption is available of
the amount (prorate basis as per formula given above) which is utilized
by assessee in the purchase or construction of new residential house
before the date of filing return of income and the amount (prorate basis
as per formula given above) which is invested by the assessee in
capital Gains Accounts Scheme, 1988. In other words the amount which
is not utilized by assessee in the purchase or construction of new
residential house before the date of filing return of income, then it
should be invested by the assessee in Capital Gains Accounts Scheme,
1988 latest by the date of filing return of income. The amount so
invested by assessee in Capital Gains Accounts Scheme, 1988 shall be
utilized towards the purchase or construction of new residential house.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
8
(B).CONDITIONS- SECTION 54F
However wherein the amount deposited in the Capital Gains
Accounts Scheme, 1988 is not utilized (wholly or partly) for the
purchase or construction of the new residential house within the
period specified, then the following amount shall be treated as Long
Term Capital Gains in the previous year in which the period of 3 years
from the date of the transfer of the original asset expires.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
9
(C). AMOUNT OF EXEMPTION-SECTION 54F
(a)
If the cost of the new asset is not less than the net
consideration in respect of the original asset - The whole of such
capital gain shall be exempt.
(b)If the cost of the new asset is less than the net consideration in
respect of the original asset - So much of the capital gain as bears to
the whole of the capital gain the same proportion as the cost of the
new asset bears to the net consideration, shall be exempt.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
10
(D). FORMULA
FOR
EXEMPTION - SECTION 54F
CALCULATING
LTCG = Capital Gains on sale of original Capital Asset x Amount unutilized
Net Consideration
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
11
(E).FORMULA FOR WITHDRAWAL OF
EXEMPTION – SECTION 54F
LTCG = Capital Gains on sale of original Capital Asset x Amount unutilized
Net Consideration
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
12
(F). STRUCTURING TAX- SECTION 54F
•There is no stipulation in act, rules, notification or circular that new
asset so purchased cannot be mortgaged. In other words, loan can
be taken on the security of such new asset.
•There is no stipulation in act, rules any notification or circular that
new asset so purchased cannot be leased. In other words new asset
so purchased can be leased. However this step might require due
planning and structuring of the deal in the light of separate
provisions in financial lease and operating lease. This may involve
litigation also.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
13
(F).
STRUCTURING TAX - SECTION 54F
•New asset so purchased cannot be transferred for a period of 3
years. However we can use section 47 and actually transfer the new
asset without there being any capital gains.
•There is no stipulation in act, rules, notification or circular that new
asset is to be purchased from own funds of assessee or from the
sale proceeds of original asset. Even if an assessee borrows
required funds and satisfies other conditions relating to investment in
specified assets, he is entitled to exemption.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
14
THANK YOU
Your comments and suggestions are of utmost
importance and are always welcomed.
CA. Rajat Mohan
B.Com(H), ACA, ACS, DISA
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
Head Office
F-31 D.B. Gupta Market, Karol Bagh, New Delhi-110005
Office Phone: 011-23672609 / 23535809
Branch Office
18A, IInd Floor, North Avenue Road, West Punjabi Bagh, New Delhi-110026
office Phone: 011-47322696/97
Website: www.delhicamohan.com
E-mail: rajat.mohan@icai.org
15