(a) Both individual and HUF can claim exemption u/s 54B.
(b) The asset which is transferred should be an agricultural land situated in urban area. Such asset can be either LTCA / STCA. The agricultural land was used by the individual or his parents for agricultural purpose for a period of atleast 2 years immediately preceding the date of its transfer.
(c) New agricultural land should be purchased within 2 years from the ‘Zero Date’. Date of sale of original agricultural land is treated as ‘ZERO DATE’.
E.g. Suppose zero date is 7-8-2016. A new agricultural land should be purchased by 6-8-2018. (Zero date --->2 years).
Note: As per section 54H, zero date in case where property is compulsorily acquired 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.
(d) Deposit scheme u/s Section 54(2) is applicable. Refer section 54 for detail.
Amount of Exemption
Amount invested in new agricultural land (within 2 years from the zero date) +
Amount deposited in Scheduled Bank on or before the due date of furnishing of return
Total exempted amount limited to LTCG / STCG [AE+TE limited to LTCG / STCG]
Note: The assessee can purchase more than one agricultural land to claim exemption u/s 54B.
Consequences 1: Consequences of Non-Utilisation of Deposited Amount Within 2 Years From The Zero Date
Amount of capital gain exempted earlier out of deposited amount
Less: Amount utilised to purchase new agricultural land within 2 years from the zero date
LTCG / STCG1 (Chargeable to tax in the PY when period of 2 years expires from the zero date)
Note 1: 1 Depends upon original capital asset transferred.
Note 2: The remaining unutilised amount can be withdrawn at any time after the expiry of 2 years from the zero date.
Consequences 2:Consequences if newurban agricultural land is transfered and is transferred within 3 tears after the date of acquition of new land
The amount of capital gain exempted earlier + K
The amount of capital gain arising on transfer of new urban agricultural land
STCG (chargeable to tax in the year of transfer) (YOC = YOT)
A + B
Date of purchase / deposited
Amount invested / deposited
AL 1 in rural area
AL 2 in urban area
AL in Surat
Ans: AY 2016-17 LTCG Rs 55,000.
Date of purchase
AL 4 in urban area
AL 5 in urban area
AL 6 in rural area
Compute Capital Gain chargeable to tax for the AY 2019-20.
Ans: LTCG Rs 75,000.
P3: Continuing from both the preceding illustrations Mr. Taxcrazy sells the following agricultural land :
Date of sale
AL in Surat
Compute Capital Gain chargeable to tax for different AY’s
Ans: nil; (70,000); 4,50,000. Hint: No capital gain arises since rural agricultural land is not a capital asset.
Proportionate exemption is available
................................ x Amount invested in new RHP or amount deposited.
Net sale consideration
Note 1: Net Sale Consideration = Sale Consideration - Expenses on Transfer.
Consequences 1:Consequences of Non-Utilisation of Deposited Amount Within 2 Years From The Zero Date
Amount of proportionate capital gain exempted earlier
Less : Proportionate amount utilised within zero date
LTCG (chargeable to tax in the PY when period of 3 years expires from the zero date) (YOC = ZD + 3 years)
Note 1: In other words it can be said that proportionate unutilised amount is treated as LTCG..
Note 2: 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 RHP is Transferred with in 3 years from the date pf acquition of new RHP
Amount of proportionate capital gain exempted earlier shall be treated as LTcG in the year of transfer. (yOc = YOT)
Amount of capital gain arising on transfer of new residential house property is treated as STcG in the year of transfer. (YOC = YOT)
Consequences 3. If any other house(other than the new residential house) is purchased/constructed with in 2/3 years from the zero date
In such case the amount of proportionate capital gain exempted earlier shall be treated as LTCG which shall be chargeable to tax in the year of purchase / construction of new house. It means if more than one residential house property is purchased or constructed within 2 / 3 years from the zero date exemption is withdrawn in case of first house. If exemption is claimed in respect of the first house it shall be withdrawn and shall be taxed in the year of purchase of second residential house.
WHEN EXEMPTION U/S 54F IS NOT AVAILABLE (RESTRICTION)
If on the date of transfer of the original asset the assessee owns 2 or more than 2 residential house properties, the exemption u/s 54F is not available. It means to claim exemption u/s 54F the assessee should not own more than one residential house property on the date of transfer of original asset.
Note : To claim exemption the residential house should be purchased or constructed in India.
P1: Compute capital gain for AY 2017-18 on the assumption that due date of filing of return is 31-7-2016.
For claiming exemption u/s 54F Mr. Taxcrazy deposits RS 5,00,000 on 1-7-2017 under Capital Gain Account Scheme, 1988 to purchase a new residential house property. Expenses on transfer was RS 2,000.
Computation of Capital Gain for ay 2017-18
Less : Expenses on transfer
Net sale consideration (NSC)
Less : Indexed COA (1125 - 497 x 50,000)
Percentage (LTCG - NSC)
Less : Proportionate exemption u/s 54F of the deposited amount (85.186% of 5,00,000)
P2 : In the above illustration Mr. Taxcrazy purchases a new residential house property on 14-7-2018 for Rs 2,00,000 out of the deposited amount. Compute capital gain chargeable to tax.
Amount of proportionate capital gain exempted earlier
Less : Proportionate amount utilised within 2 years from the zero date (85.186% of 2,00,000)
Sale of RHP and purchase/construction of RHP.
Sale of LTCA (other than RHP) and purchase/ construction of RHP.
On the date of sale i.e. on the zero date you may have more than 2 RHP, then also you get exemption.
On the date of sale i.e. on the zero date you should not own 2 or more than 2 RHP.
To claim exemption an assessee is allowed to purchase/construct only 1 RHP. If assessee purchases second house exemption is not withdrawn.
To claim exemption an assessee is allowed to purchase/construct only 1 RHP, otherwise exemption is withdrawn.
When a new RHP is sold within 3 years from the zero date only STCG arises.
When a new RHP is sold within 3 years from the zero date both LTCG and STCG arises.