Modified Exemption Under Section 54
Due to the new method of calculating the taxable long-term capital gains, there will be a change in the amount to be invested for getting complete exemption from income tax under Section 54.
Section 54 provides that in
case of a long-term capital gain relating to a residential house, the entire
long-term capital gain can be tax-free if the amount of the long-term capital
gains is invested in the purchase or construction of another residential house
within a period of 1, 2 and 3 years, as the case may be. In such a case, it is
not the full amount of the actual gain but the taxable capital gain as
calculated after giving effect to the deduction for the Cost Inflation Index
under Section 48 which is to be invested. For example, in Illustration
No. 7.1, though the original acquisition price was ` 3 Lakh and the
market price on 1-4-1981 was ` 10 Lakh the “Indexed Cost of Acquisition”
being ` 78,50,000 (for AY
2012-2013), the long-term capital gain alone needs to be invested in the
acquisition of a house or flat for the purpose of getting complete exemption
under Section 54.
Thus, it is not the
amount of difference between the sale price and cost price or the market price
as on 1-4-1981 but the taxable long-term capital gain after giving effect to
the Cost Inflation Index which alone is required to be invested under Section
54. However, if there is a sale of capital asset not being a residential house
and the assessee wants an exemption under Section 54F by investing in a
residential house, then the entire sale consideration will have to be invested.