Section 54F - Exemption on Capital Gains from stocks, land, etc

Income Tax Income from Capital Gains
21

Hi There,

My mother wants to transfer long term shares to me as gift.

I want to sell them and buy a house.

Will my mother or me be liable to pay LTCG taxes considering section 54F?

22

Hi @Ashish_Jain

The tax liability arises on you when you sell those shares and have a LTCG and avail the deduction u/s 54F.

23

Hi @Shrutika_Shah

I am not gifting shares to mother.

My mother is gifting to me and I am selling them to buy a house.

24

Hi @Ashish_Jain

Apologies. If you receive the shares as a gift from your mother, there arises no tax liability on either of you.
However, when you sell those shares, and incur a capital gain/loss, it is taxable to you.

Hope this clarifies.

25

But then can I not invoke section 54F which says that I can get exemption if I buy property from sale proceeds of shares.

If not why so? Will like to know the reason

Thanks

26

Hi @Ashish_Jain

You can avail the deduction under section 54F if you invest the proceeds from the sale of shares in the purchase or construction of a residential house property.
The amount of exemption u/s 54F will be as below:

  • Exemption = Cost of new asset x Capital Gains / Net Consideration

Maximum exemption is up to Capital Gains.

27

So then I will not be taxed in the above scenario, right?

28

Hi @Ashish_Jain

if you invest the proceeds u/s 54F, you will be able to claim the deduction and hence reduce your taxable capital gains.

29

QUERRY ON CAPITAL GAINS UNDER SECTION 54 AND 54 F

FACTS OF THE CASE

  1. As on date I am holding only one flat ( say Flat A)

  2. I sell equity / mutual funds held for more than 365 days and invest the net consideration in a new flat ( say flat B) and claim exemption under section 54 F.

  3. I sell flat A and invest the indexed capital gains in another flat (say flat C) and claim exemption under section 54 .

  4. I do not own any other flat

  5. I understand that the exemption under Sec 54F would be withdrawn if any other house is purchased (other than the one purchased ie flat B ) within one year from the date of selling a capital asset or the construction of another house is made within three years.

QUERRY

a. Can i do both the transactions refered to in point no 2 and 3 in the same financial year and claim benefits under both sections 54 and 54 F . If yes, why point no 5 is not applicable.
b. Can i invest the amounts as a joint owner both under point 2 and 3 wherein my contribution is clearly mentioned in monetary terms
c. Is there any monetary limits on the amounts i can invest under points 2 and 3

30

Hey @Narayan840,

Here’s an answer to your queries:

a. No, you cannot do both the transactions in the same FY due to the reason correctly mentioned by you in Point No. 5. However, there are various case laws where you can claim both the exemptions by investing in a single residential property.
b. Yes, you can invest as a joint owner.
c. No, there are no monetary limits on how much you can invest. However, for calculation of exemption the investment value is capped at ₹10 Crores.

Hope this helps!

31

THANKS FOR YOUR REPLY

I thought i can claim both 54 and 54 f in the same year since i will not be holding more than two houses at any point of time. as per section 54 f 1 given hereunder

Provided that nothing contained in this sub-section shall apply where— (a) the assessee,
— (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.

IF I CANNOT CLAIM BOTH NOW IN ONE YEAR , HOW LONG DO I NEED TO WAIT - ONE YEAR ( 54 F 1 ) OR TWO YEARS ( 54 F 2 ) TO CLAIM SECTION 54 .

any other conditions are there to do the transactions refereed in points 2 and 3
REGARDS

32

Hello @Narayan840,

You will have to wait for at least one year to claim the benefits of exemption. The new property purchase has a lock-in period of 3 years. If the property is sold within 3 years of purchase the entire gain will be taxable.

Hope this helps!

33

Thank you very much

Section 54 f 2 says I have to wait for two years from the date of sale of the shares. Why it’s not applicable to me ??

34

Hello @Narayan840,

My apologies, you will have to wait for 2 years as per the amended section 54F(2).

35

Hi

Will the exemption of section 54F be applicable if I renew my existing house and do interior work? The house is more than 10 years old and hence renewal, merging of rooms and lot of interior work is needed. If I sell 10Lakh worth of shares and if the renewal/modification cost is definitely more than 10Lakhs, then will that entire 10Lakh be totally exempt? Thanks in advance

36

Hey @Sridhar,

Exemption u/s 54F is available only when you purchase a residential property. Hence, you will not be able to claim it for renovating an older property.

1 Like
37

is there any other sections in which one can claim exemption for renovating an older property. ?

38

Hey @HIREiN,

If you take a home loan to renovate a house property, u/s 24 of Income Tax Act, if the owner or his family are self-occupying the house property, they can claim up to INR 2 lakh on the interest of their home loan. The same treatment applies when the house is vacant.
However, if the house property is let out for rent, the entire interest amount is allowed as a deduction.

Hope this clarifies!

1 Like
39

1.Can I keep non-LTCG funds as well in capital gain accounts? I want to do this so that the corpus to buy a home stays in one place.
2. My mother wants to transfer me shares w/o consideration as a gift so that I can buy a home.
2.a. Will LTCG be exempted when I sell these shares?
2.b. Should I expect any notices if I try to seek LTCG u/s 54F in this case?
2.c. Can I be denied the LTCG exemption because of any reason in the above mentioned case?
3. Do I need to get any clearance from assessing officer when I close my capital gain account? If so, how to get it done?

Can a CA take care of all the work that has to be done in this entire process? I need some leads. Thanks!

40

Hey @Ashish_Jain,

Under the Income Tax Act 1961, Section 54 to 54F, taxpayers who have long-term capital gains are eligible to invest in the Capital Gains Account Scheme (CGAS).

Moreover, if you receive shares as a gift from your mother and decide to sell them, there will be long-term capital gains on the same. However, they will be exempted from tax if you reinvest the amount into purchasing a house. The exemption will not be denied.

Yes, Form G is required to be submitted for the closure of the account along with the jurisdictional income tax officer’s approval.

Hope this helps!