No Income Tax/ Capital Gain on Sales of Residential House Property/Section 54 Exemption/ maximum10Cr
New Rule: Effective from the Assessment Year 2024-25 (April 1, 2024, onwards), the maximum exemption allowed under Section 54 is capped at Rs. 10 crore. This means: If the cost of the new residential property exceeds Rs. 10 crore, the excess amount invested will not be considered for exemption calculation.
What is the amount of capital gain exemption available under Section 54?
Section 54 of the Income Tax Act allows the lower of the two as an exemption amount for a taxpayer:
Amount of capital gains on transfer of residential property or
The investment made for constructing or purchasing new residential property
The balance amount (if any) will be taxable as per the Income Tax Act.
With effect from Assessment Year 2024-25, the Finance Act 2023 has restricted the maximum exemption to be allowed under Section 54. In case the cost of the new asset exceeds Rs. 10 crore, the excess amount shall be ignored for computing the exemption under Section 54.
For Example, Mr. Anand sells his house property and earns a capital gain of Rs. 35,00,000. With the sale amount, he purchased a new house for Rs 20,00,000. The exemption under Section 54 will be the lower amount of Rs 20,00,000.
The capital gains that are liable for taxation will be the balance of both, which is Rs 15,00,000 ( 35,00,000-20,00,000).
Which are the mandatory conditions for availing exemptions u/s Section 54?
The taxpayer requires us to fulfill various conditions to avail of the exemptions under section 54. They are as follows:
After the sale of the old house property, the assessee must purchase a new residential property or construct a new house property to benefit from this exemption.
The new residential property must be purchased either one year before the sale of the old property or two years after the sale of the house property or constructed within three years of the date of transfer or sale.
Only one house property can be constructed or purchased by the individual to claim the benefit.
With effect from Assessment Year 2021-22, the Finance Act 2020 has amended Section 54 to extend the benefit of exemption with respect to investments made in two residential house properties. The exemption for the investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long-term capital gains does not exceed Rs. 2 crore. If the assessee exercises this option, he shall not be entitled to exercise it again for the same or any other assessment year.
Suppose the individual fails to construct or purchase a new house property within the stipulated period. In that case, he or she can deposit the capital gains proceeds in the Capital Gains Account Scheme in any public sector bank and avail of the exemption from this section.
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