ca. rajat mohan b.com(h),aca, acs, disa 1 tax planning through investments exemptions available to...

CA. Rajat MohanB.Com(H),ACA, ACS, DISA

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Tax Planning through Investments

Exemptions available to

INDIVIDUAL AND HINDU UNDIVIDED FAMILY

Taxpayers

SECTION 54

EXEMPTION

FROM PROFIT

ON SALE OF PROPERTY

USED FOR RESIDENCE.


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(A).TAXPAYER CATEGORY-SECTION 54

This exemption is available to taxpayers, being individual or Hindu undivided family.


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(B). CONDITIONS- SECTION 54

1. Nature of Capital Asset Criteria — The capital gain arises from the transfer of a long-term capital asset.

2. Original asset transferred criteria — Assets transferred being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property.


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3. New asset acquired criteria — Assessee shall satisfy at least 1 of the following conditions:

(a) Purchase a residential house either 1 year before or 2 year after the date of transfer of original residential house;

(b) Construct a residential house within 3 years after the date of transfer of original residential house.



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4. Non-transfer of new asset for 3 years Criteria — New residential house so purchased or constructed shall not be transferred within a period of 3 years from the date of its acquisition. However if this new residential house is transferred within this period then for the purpose of computing capital gains for new residential house, the cost of acquisition shall be reduced by the amount of the capital gain exempted under this section



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5. Capital Gains Accounts Scheme — The exemption is available of the amount, which is utilized by assessee in the purchase or construction of new residential house before the date of filing return of income, and the amount, which is invested by the assessee in Capital Gains Accounts Scheme, 1988. In other words the amount which is not utilized by assessee in the purchase or construction of new residential house before the date of filing return of income, then it should be invested by the assessee in Capital Gains Accounts Scheme, 1988 latest by the date of filing return of income. The amount so invested by assessee in Capital Gains Accounts Scheme, 1988 shall be utilized towards the purchase or construction of new residential house.



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However wherein the amount deposited in the Capital Gains Accounts Scheme, 1988 is not utilized (wholly or partly) for the purchase or construction of the new residential house within the period specified, then the amount not so utilized shall be charged as the Long Term Capital Gains of the previous year in which the period of 3 years from the date of the transfer of the original asset expires.



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1.If the amount of the capital gain is greater than the cost of the new residential house so purchased or constructed – The cost of the new residential house so purchased or constructed shall be exempt from tax

2.If the amount of the capital gain is equal to or less than the cost of the new residential house so purchased or constructed – The entire capital gain shall be exempt.

(C). AMOUNT OF EXEMPTION- SECTION 54


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SECTION 54F

EXEMPTION FROM CAPITAL GAIN ON TRANSFER OF CERTAIN CAPITAL ASSETS IN CASE OF

INVESTMENT INRESIDENTIAL HOUSE.


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This exemption is available to taxpayers, being individual or Hindu

undivided family.

(A). TAXPAYER CATEGORY - SECTION 54F


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1. Nature of Capital Gains on sale of original asset criteria — The capital gain arises from the transfer of any long term capital asset.

2. Original asset transferred criteria — Exemption is available for any long term capital asset not being a residential house.

(B).CONDITIONS- SECTION 54F


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(B).CONDITIONS- SECTION 54F3. New asset acquired criteria — The assessee has, within a

period of 1 year before or 2 years after the date on which the transfer took place purchased, or has within a period of 3 years after that date constructed, a new residential house.

4. The assessee does not own more than 1 residential house, (other than the new residential house) on the date of transfer of the original asset.


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5. The assessee, shall not purchase any residential house, (other than the new residential house), within a period of 2 year after the date of transfer of the original asset. However wherein the assessee defaults, the amount of capital gain exempted under this section shall be deemed to be long-term capital gains of the previous year in which such residential house is purchased.

6. The assessee, does not construct any residential house, (other than the new residential house), within a period of 3 years after the date of transfer of the original asset. However wherein the assessee defaults, the amount of capital gain exempted under this section shall be deemed to be long-term capital gains of the previous year in which such residential house is constructed.



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7. Non-transfer of new asset for 3 years criteria — New residential house so purchased or constructed shall not be transferred within a period of 3 years from the date of its purchase or construction. However if this new residential house is transferred within this period then the amount of capital gains exempted under this section shall be treated as long-term capital gains of the previous year in which such new residential house is transferred.


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8. Capital Gains Accounts Scheme — The exemption is available of the amount (prorate basis as per formula given above) which is utilized by assessee in the purchase or construction of new residential house before the date of filing return of income and the amount (prorate basis as per formula given above) which is invested by the assessee in capital Gains Accounts Scheme, 1988. In other words the amount which is not utilized by assessee in the purchase or construction of new residential house before the date of filing return of income, then it should be invested by the assessee in Capital Gains Accounts Scheme, 1988 latest by the date of filing return of income. The amount so invested by assessee in Capital Gains Accounts Scheme, 1988 shall be utilized towards the purchase or construction of new residential house.


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(B).CONDITIONS- SECTION 54FHowever wherein the amount deposited in the Capital Gains

Accounts Scheme, 1988 is not utilized (wholly or partly) for the purchase or construction of the new residential house within the period specified, then the following amount shall be treated as Long Term Capital Gains in the previous year in which the period of 3 years from the date of the transfer of the original asset expires.


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(a) If the cost of the new asset is not less than the net consideration in respect of the original asset - The whole of such capital gain shall be exempt.

(b) If the cost of the new asset is less than the net consideration in respect of the original asset - So much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall be exempt.

(C). AMOUNT OF EXEMPTION-SECTION 54F

CA. Rajat MohanB.Com(H),ACA, ACS, DISA 19

LTCG = Capital Gains on sale of original Capital Asset x Amount unutilizedNet Consideration

(D). FORMULA FOR CALCULATING EXEMPTION - SECTION 54F


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(E).FORMULA FOR WITHDRAWAL OF EXEMPTION – SECTION 54F

LTCG = Capital Gains on sale of original Capital Asset x Amount unutilizedNet Consideration


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•There is no stipulation in act, rules, notification or circular that new asset so purchased cannot be mortgaged. In other words, loan can be taken on the security of such new asset.

•There is no stipulation in act, rules any notification or circular that new asset so purchased cannot be leased. In other words new asset so purchased can be leased. However this step might require due planning and structuring of the deal in the light of separate provisions in financial lease and operating lease. This may involve litigation also.

(F). STRUCTURING TAX- SECTION 54F


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• New asset so purchased cannot be transferred for a period of 3 years. However we can use section 47 and actually transfer the new asset without there being any capital gains.

• There is no stipulation in act, rules, notification or circular that new asset is to be purchased from own funds of assessee or from the sale proceeds of original asset. Even if an assessee borrows required funds and satisfies other conditions relating to investment in specified assets, he is entitled to exemption.

(F). STRUCTURING TAX - SECTION 54F

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THANK YOUYour comments and suggestions are of utmost

importance and are always welcomed.

CA. Rajat Mohan B.Com(H), ACA, ACS, DISA

MOHAN AGGARWAL & ASSOCIATESChartered AccountantsHead OfficeF-31 D.B. Gupta Market, Karol Bagh, New Delhi-110005Office Phone: 011-23672609 / 23535809

Branch Office18A, IInd Floor, North Avenue Road, West Punjabi Bagh, New Delhi-110026office Phone: 011-47322696/97

Website: www.delhicamohan.comE-mail: [email protected]

mailto:[email protected]

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