Exemptions from CapitaL Gain - Taxation Taxation Notes | EduRev

Income Tax for assessment year 2017-18 (Inter Level)

Taxation : Exemptions from CapitaL Gain - Taxation Taxation Notes | EduRev

The document Exemptions from CapitaL Gain - Taxation Taxation Notes | EduRev is a part of the Taxation Course Income Tax for assessment year 2017-18 (Inter Level).
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Exemptions from CapitaL Gain - Taxation

conditions

a. Only individual or HUF can claim exemption under section 54. (R / NR / IC / FC)

b. The asset which is transferred should be a residential house property being a long term capital asset. It includes buildings or land appurtenant thereto which is chargeable under the head ‘Income from House Property’.

c. New residential house property should be purchased or constructed in india within time allowed before or after the “Zero Date”.  

Note 1: Zero Date is the date of sale of original residential house property. Let us see the time limit.

- A new RHP should be purchased within 1 year before the ‘zero date’.

- A new RHP should be purchased within 2 years from the ‘zero date’.

- A new RHP construction should be completed within 3 years from the ‘zero date’.

In short  (1 year purchase <--zero date --> 2 years purchase or 3 years construction)

e.g. The date of sale of original residential house 6-10-2016. Find out the date by which he should purchase or construct a new residential house to claim exemption u/s 54.

Exemptions from CapitaL Gain - Taxation Taxation Notes | EduRev

It means to claim exemption a new house can be purchased on or after 7-10-2015 or by 5-10-2017 8however construction of new house should be completed on or after 6-10-2016 but by 5-10-2019.

d. Deposit scheme u/s 54(2) : Where the amount is not so utilised for purchase or construction of new residential house before the due date of furnishing of return, it shall be deposited by him on or before the due date of furnishing of return in the deposit account as per Capital Gain Account Scheme, 1988. Such deposited amount is deemed to be cost of acquisition of new asset on which exemption u/s 54 be claimed.

Note 1: Due date of furnishing of return for the AY 2017-18 is either 31-7-2017 or 30-9-2017 as the case may be.

Note 2: If assessee plans to purchase / construct a new residential house after the due date of furnishing of return then he should deposit the amount in a Scheduled Bank on or before the due date of furnishing of return and such deposited amount should be utilised on or before 5-10-2018 or 5-10-2019 as the case may be for purchase or construction of new residential house property.

Note 3: Assessee can claim exemption of only 1 residential house under section 54.

Memory technique: ‘Zero date’ is seen only when house is purchased or constructed and due date of furnishing of return is seen only when amount is deposited in a Scheduled Bank.

Computation of Amount of Exemption

 

Amount invested in new residential house within due date of furnishing of return

AE

Amount deposited in Scheduled Bank on or before the due date of furnishing of return

TE

Exempted amount limited to LTCG [AE / TE limited to LTCG]

 

 

Consequences 1: Consequences of Non-Utilisation of deposited Amount with in  2 / 3 years from the zero date

a. The deposited amount should be utilised either to purchase or construct a new residential house property within 2 / 3 years from the zero date, otherwise exemption claimed on the basis of amount deposited shall stand withdrawn or taken back.

b. Withdrawal of exemption shall be treated as LTCG which shall be chargeable to tax after the expiry of 3 years from the zero date. Its computation is shown below. 

Computation of LTCG

 

Amount of capital gain exempted earlier from the deposited amount

TE

Less : Amount utilised to purchase or construct a new RHP within 2 / 3 years from the ‘zero date’

(AE)

LTCG (chargeable to tax in the PY when period of 3 years expires from the ‘zero date’)

(YOC = ZD + 3 years)

xx

 

Note 1: The remaining unutilised amount can be withdrawn at any time after the expiry of 3 years from the ‘zero date’.

Consequences 2: Consequences if new residential house is transfered with in 3 years from the date of its acquition

When a new residential house is transferred within 3 years from the date of its acquisition, then there arises two types of gains:

a. STCG arises on transfer of new residential house, since house is transferred within 3 years from the date of its acquisition.

b. A penalty gain meaning thereby the amount of capital gain exempted earlier for the new residential house shall stand withdrawn. We call it penalty gain since withdrawal of LTCG exemption is converted into STCG.

See below how.

Computation of STCG

 

The amount of capital gain exempted earlier +

LTCG

The amount of capital gain arising on transfer of new RHP

(Sale consideration - Cost of acquisition - Cost of improvement - Expenses on transfer)

STCG

STCG (chargeable to tax in the year of transfer of RHP) (YOC = YOT)

STCG

 

Other Points

a. zero date in case where property is compulsorily acquired: Zero date shall be the date when part or full initial compensation is received. In case of enhanced compensation the date of receipt of enhanced compensation shall be the zero date. [S 54H]

b. taxability of unutilised amount on the death of the owner of the property: The unutilised deposit amount under the Capital Gains Account Scheme, 1988 in the case of an individual who dies before the expiry of the stipulated period cannot be taxed in the hands of the deceased. This amount is not taxable in the hands of legal heirs also as the unutilised portion of the deposit does not partake the character of income in their hands but is only a part of the estate devolving upon them.

P1: Compute capital gain of Mr. X for the AY 2017-18. Long term capital gain arising from the sale of residential house property ₹ 7,00,000 on 1-2-2017. Due date of furnishing of return is 31-7-2017.

 

Date of purchase or deposited

Amount invested or deposited

House at Raipur

1-2-2016

1,40,000

Deposits

30-7-2017

2,80,000

Deposits

1-8-2017

2,50,000

 

Solution

To claim exemption u/s 54, he should invest in new RHP within zero date which is 2-2-2016 <--- 1 -2-2017 ---> 31-1-2018 (P) or 31-1-2020 (C).

Computation of Capital Gain for AY 2017-18

 

Date of purchase / construction

Amount invested

House 1 is purchased

2-2-2019

73,000

House 2 is constructed

16-1-20

1,27,000

 

(B) What if House 2 is purchased instead of construction.

Ans: 1,53,000; 2,80,000.

Solution

Computation of Capital Gain for AY 2020-21

 

Amount of capital gain exempted earlier (deposited amount)

2,80,000

Less : Amount utilised within 2 / 3 years from the zero date.

 

House 2

(1,27,000)

LTCG

1,53,000

 

Note : House 1 is purchased after 2 years from the zero date therefore exemption u/s 54 is not available. Also only 1 house is eligible for exemption.

P3: Continuing from the preceding illustrations Mr. X sells house 2 on 10-1-2023 for (a) Rs 1,50,000 (b) Rs 27,000 Compute capital gain chargeable to tax.

Solution

Computation of Capital Gain for AY 2023-24

 

 

(a)

(b)

LTCG (Amount of capital gain exempted earlier out of deposited amount)

1,27,000

1,27,000

STCG (Sale Consideration - Cost of acquisition new house)

23,000

(1,00,000)

STCG

1,50,000

27,000

 

P4 :

1. When can exemption be withdrawn or taken back?

2. Which capital gain arises when the deposited amount is not fully utilised?

3. Which capital gain arises when the new RHP is transferred within 3 years of its purchase or construction?

4. Which date is seen when new RHP is purchased or constructed?

5. Which date is seen when the amount is deposited in a Scheduled bank under the Capital Gain Account Scheme, 1988?

6. X Ltd. a resident in India sells a residential house property on July 1, 2016 for consideration of Rs 90 lakhs. The long terms capital gain generated on the transaction is Rs 40,00,000. Determine the maximum amount of exemption which can be claimed u/s 54.

7. Is it always beneficial to claim exemption u/s 54?

8. Can exemption u/s 54 be claimed if new house is purchased or constructed after the due date of furnishing of return but without depositing in a Scheduled Bank?

9. A Non Resident individual purchases a residential house in India whether exemption u/s 54 is available?

10. A Resident individual purchases a residential house outside India whether exemption u/s 54 is available?

 
Ans:
1. When deposited amount is not fully utilised or when the new house is transferred within 3 years of it’s purchase or construction.
2. LTCG.
3. STCG.
4. Zero date.
5. Due date of furnishing of return.
6. Nil.
7. No. When house is purchased and sold before the due date (DD) of furnishing of return, then it is not beneficial to claim exemption.
8. No.
9. Yes.
10. No.
 

P5 : Compute capital gain from the following informations.

 

Zero Date [Date of sale of original house property]

1-1-2017

LTCG

8,00,000

Deposits before due date of filing of return.

5,00,000

House purchased out of deposited amount on 31-12-2018

4,00,000

Zero Date [Date of sale of original house property]

1-1-2017

LTCG

11,00,000

Deposits before due date of filing of return.

9,00,000

House constructed out of deposited amount on 1-1-2019

8,00,000

Zero Date [Date of sale of original house property]

1-1-2017

LTCG

15,00,000

House purchased on 31-12-2016.

16,00,000

Sold the new house on 29-12-2019

18,00,000

Zero Date [Date of sale of original house property]

1-1-2017

LTCG

20,00,000

Deposits before due date of filing of return

21,00,000

House purchased out of deposited amount on 1-1-2019

5,00,000

 

Zero Date [Date of sale of original house property]

1-1-2017

LTCG

21,00,000

House purchased on 1-4-2016

25,00,000

Sold the new house on 31-3-2017

28,00,000

Zero Date [Date of sale of original house property]

1-1-2017

LTCG

15,00,000

House purchased on 1-12-2017. No amount was deposited.

10,00,000

 

Ans: (1) 3,00,000; 1,00,000 (2) 2,00,000; 1,00,000 (3) nil; 17,000,000 (4) nil; 20,00,000. (5) LTCG 21,00,000; STCG 3,00,000. (6) LTCG 15,00,000.

P6R: Mr. X furnishes the following particulars for the PY ending 31-3-2017 and request you to compute the taxable capital gain : He had a residential house, inherited from father in 2005, the fair market value of which on 1-4-1981 is Rs 5,00,000. In the year 2007-08, further construction and improvements Rs 6,00,000. On 10-5-2016, the house was sold for Rs 50,00,000. Expenditure in connection with transfer is Rs 50,000. On 20-12-2016 he purchased a residential house for Rs 15,00,000.

Ans: 10,93,164.

P7: X sells his residential house in Delhi for Rs 10,90,000 on 23-5-2016. This house was purchased by him on 1-4-2002 for Rs 2,90,000. On 30th June 2016, he purchased a flat in Mumbai for Rs 8,70,000 for the purpose of the residence of his son-in-law. He also purchases a flat in Dubai for himself for Rs 20,00,000. On 1-3-2017, he sells the Mumbai flat for Rs 12,10,000. Compute the capital gain arising on the two transactions. Is X eligible for exemption under section 54?

Ans: LTCG 3,60,134; STCG 3,40,000. Though X is eligible to claim exemption, it is better not to claim exemption u/s 54.

Brief Section 54

RHP is transferred

R-°R

R-R

NR

In India

T (54 available)

T (54 available)

T (54 available)

Outside India

T (54 available)

NT (54 not available)

NT (54 not available)

 

Sells property anywhere in the world and purchases property in India exemption u/s 54 is available

Sells property in India and purchases property in India exemption u/s 54 is available

Sells property in India and purchases property in India exemption u/s 54 is available

 

Table for memorising section 54

1. Title

RHP transferred anywhere in the world. RHP acquired in India.

2. Conditions

 

a

Eligible Assessee

Ind/HUF Resident or Non Resident (Refer above table)

b

Eligible asset which is being transferred

RHP+LTCA

c

Time limit of purchase RHP in India

(P)1 yr <-- ZD-->2 yr (P) / 3yr (C)

d

Deposit scheme

Applicable

3. Amount of exemption

AE+TE

4. Consequences 1. Deposited amount unutilised

TE - AE = LT | YOC = ZD+3yr

Consequences 2. New asset transferred within 3

LT+ST=ST

years from the date of acquisition

YOC=YOT

Other points

Only 1 RHP exemption can be claimed

 
 
 
 
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