Exemption under Section 54F and 54EC
As per provisions of section 54F of the Income Tax Act, 1961, exemption of capital gain is available in case of transfer of long term capital assets against investment in residential house. The salient features for availing exemption under section 54F are detailed hereunder-
Eligible assessees: Individuals / HUFs
Conditions to be fulfilled:-
- There must be transfer of a long-term capital asset, not being a residential house.
- Transfer of plot of land is also eligible for exemption
- The assessee should:-
- Purchase one residential house situated in India within a period of 1 year before or 2 years after the date of transfer; or
- Construct one residential house in India within 3 years from the date of transfer.
- The assessee should not own more than one residential house on the date of transfer.
- The assessee should not –
- purchase any other residential house within a period of 2 years or
- construct any other residential house within a period of 3 years from the date of transfer of the original asset.
Consequences:-
- Consequences where the assessee purchase any other residential house within a period of 2 years or construct any other residential house within a period of 3 years from the date of transfer of original asset:
- The capital gains exempt earlier under section 54F shall be deemed to be taxable as long-term capital gains in the previous year in which such residential house is purchased or constructed.
- Consequences if the new house is transferred within a period of 3 years from the date of its purchase :-
- Capital gains would arise on transfer of the new house; and
- The capital gains exempt earlier under section 54F would be taxable as long-term capital gains.
Highlights of Section 54F
| Particulars | Section 54F |
| Eligible Assessee | Individual / HUF |
| Asset transferred | Any asset other than Residential House. |
| Period of holding of the asset transferred | Long-term capital asset |
| Other Conditions | Assessee should not own more than one residential house on the date of transfer |
| Qualifying asset i.e, asset in which capital gains has to be invested | One Residential House situated in India |
| Time limit for purchase/construction | Purchase within 1 year before or 2years after the date of transfer or Construct within 3 years after the date of transfer |
Alternatively- Assessee who has sold a property can make an investment in specified bonds(NHAI or RECL Bonds) as per Section 54EC within a period of 6 months from the date of transfer subject to a maximum of Rs.50,00,000/- p.a.
Highlights of Section 54EC
| Particulars | Section 54EC |
| Eligible Assessee | Any Assessee |
| Asset sold/transferred | Any Capital Asset |
| Period of holding of the asset transferred | Long-term capital asset |
| Qualifying asset i.e, asset in which capital gains has to be investedRs | Long Term Specified Asset –Bonds of NHAI or RECL(Redeemable after 5 years) |
| Time limit for purchase/construction | Purchase within 6 months from the date of transfer |
| Amount of Exemption | Capital gain or amount invested of them whichever is lower subjected to a maximum of Rs.50,00,000/- |
Contributed by – Sateesh Kumar
This information is really valuable and precise. I have read various blog posts regarding Section 54F and 54CF but most of doubts weren’t cleared. Now all Section 54F related queries are resolved.