Exemption u/s 54 - Capital Gains - Residential House Property

• Section 54 of the Income Tax Act, 1961 contains exemptions from capital gains in the case of residential house property. 

• The exemption is only available to Individuals and HUFs. 

• The asset to be transferred should be a residential house property. 

• The capital gain arising on sale of residential house property should be long term in nature. 

• The exemption will be given only on purchase of a residential house property in India after sale of residential house property. 

• The new asset i.e. the new residential house property should be purchased within a period of one year before or two years after the date of transfer of original property or the new asset should be constructed within 3 years from the date of transfer. 

• If the amount of capital gains does not exceed 2 crore rupees, the assessee can acquire or construct 2 residential house properties in place of one property. 

• The option of acquiring 2 properties in place of 1 was introduced vide Finance (No.1) Act, 2019 and can be exercised by the assessee in only one assessment year. 

• CGAS Scheme: If the assessee is unable to spend the entire amount on construction or purchase of property till the due date of filing the return of income, he has an option to deposit the balance amount in any bank or institution authorized for CGAS scheme. 

• The deposited amount shall be used for the prescribed purpose within the prescribed time period failing which the amount not utilized shall be charged as the income of the P.Y. in which the period of 3 years from the date of transfer of original asset expire. 

• Amount of exemption: The amount of exemption that can be availed is lower of capital gain amount or the cost of new asset/amount deposited in CGAS till the due date of filing return of income. 

• Lock in period: The new property acquired should not be transferred within 3 years from the date of its acquisition. If it is transferred within 3 years, the amount of exemption availed earlier shall be reduced from the cost of acquisition of new property.