Exemption Of Long-Term Capital Gains Regarding Any Capital Asset On Investment In A Residential House

Exemption Of Long-Term Capital Gains Regarding Any Capital Asset On Investment In A Residential House

Another income tax exemption which can be enjoyed by an investor on investment in residential house property can be secured under Section 54F.

Thus, where an investor has a long-term capital gain on the transfer of any capital asset (other than a residential house) like shares, a plot of land, commercial assets, commercial house property, jewdllery, etc., then he can secure complete income tax exemption on the long-term capital gain in respect of the sale of the capital asset if the entire net sale proceeds thereof are invested in the acquisition of a residential house or a part either by purchase or construction.

Thus, the entire net sale proceeds should be invested within 1 Year of the transfer in advance or within 2 years from the date of transfer in the purchase of a residential house property or the sale proceeds may be invested within 3 years in the construction of a residential house property.

However, there is one more condition, which is very important and which must be ensured by every taxpayer. This benefit of exemption is available only where the taxpayer does not own any residential house as on the date of the transfer of the capital asset.

The Finance Act, 2000 had, from AY 2001-2002, removed one condition for the operation of the exemption under Section 54F. Thus, if an assessee owns not more than one residential house, on the date of transfer of the original asset, he would be eligible to the exemption under Section 54F.

Further, such a person should not buy within 1 year any other residential house or a flat or should not construct within 3 years any residential house from the date of transfer of the original capital asset.

Further, the lock-in period for the new residential house so acquired is 3 years. Thus, the newly acquired house should not be so sold or transferred within a period of 3 years, otherwise the entire capital gain becomes taxable.

Where the entire sale proceeds of any capital asset are not so invested in the residential house property on or before the last date of voluntary filing of the income tax return, then the same procedural requirement about the investment of the money in a bank account in a Capital Gain A/c Scheme, as explained earlier, for the purposes of Section 54 is equally applicable for Section 54F.