Capital Gain Exemption u/s 54 & 54F limited to Rs. 10 crores

Capital Gain Exemption u/s 54 and 54F for investment in residential house limited to Rs. 10 crores

Section 54 and section 54F of the Income-tax, 1961 allows deduction on the Capital gains arising from the transfer of long-term capital asset if an assessee, within a period of one year before or two years after the date on which the transfer took place purchased any residential property in India, or within a period of three years after that date constructed any residential property in India.

For section 54 of the Act, the deduction is available on the long-term capital gain arising from transfer of a residential house if the capital gain is reinvested in a residential house. In section 54F of the Act, the deduction is available on the long term capital gain arising from transfer of any long term capital asset except a residential house, if the net consideration is reinvested in a residential house.

The primary objective of the sections 54 and section 54F of the Act was to mitigate the acute shortage of housing, and to give impetus to house building activity. However, due to the observation that even high-net-worth assessees are claiming large deduction under these provisions, by purchasing very expensive residential houses.

In order to prevent the misuse of the said deduction/exemption provisions, it has been proposed to impose a limit on the maximum deduction that can be claimed by the assessee under section 54 and 54F to rupees ten crore.

Thus, if the cost of the new residential house purchased is more than rupees ten crore, the amount of deduction us/ 54 or 54F shall be limited to ten crore rupees

Consequentially, the provisions of sub-section (2) of section 54 and sub-section (4) of section 54F that deals with the deposit in the Capital Gains Account Scheme have also been amended.

These amendments will take effect from the 1st day of April, 2024 and shall accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment years

• AO is under an obligation to assign reasons for rejecting explanation of the assessee
• CBIC issues SoP for clearance of imported goods through Foreign Post Offices
• Sale deed executed with full knowledge of only part consideration paid, not void – SC
• No fault in serving notice to last known address when PAN data was not updated – ITAT
• Investment by firm through capital introduced by partners cannot be treated as unexplained