Capital Gain Exemption u/s 54: Capital Gains from Transfer of a Residential House

Capital Gain Exemption u/s 54: Capital Gains from Transfer of a Residential House

How to minimize Capital Gain Part – 1: Capital Gain from Transfer of a Residential House-Exemption of Capital Gains u/s 54

Introduction
Any long-term capital gains arising on the transfer of a residential house (including self-occupied house) will be exempt from tax if,

Conditions
1) If the assessee has within a period of one year before or two years after the date of such transfer purchased, or within a period of three years constructed, a residential house.

2)The assessee must not transfer the new house, within a period of three years from the date of its purchase or construction, as the case may be. Otherwise the exemption allowed under this section
shall be reduced from the cost of the new house, in computing the capital gains arising therefrom.

3)If the whole or any part of the capital gain cannot be so utilised for acquisition a residential
house before filling the return, the same should be deposited in Capital Gains Accounts Scheme, 1988 in order to claim exemption, beforethe due date for furnishing the return.

How much amount will be exempt?
The amount of exemption available is equal to the amount so utilised or the amount of capital gain, whichever is less.

If the amount of capital gain is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction, provided that the acquisition of plot and also the construction thereon, are completed within the specified period as aforesaid.

In simple words, capital gains shall be exempt to the extent it is invested in the purchase and/or construction of another house.