Section 54GB: Exemption on Sale/Transfer of Residential Property

“Real estate is a good investment. Purchase it today, and sell it later at a higher price”. This is the thought that people have been following for a secure and less risky investment.

But sometimes while planning such a scheme, people often forget the tax implications. One can plan the sale of such immovable property by taking the advantage of some tax exemptions.

Let’s discuss one of the capital gain exemptions, section 54GB, for the transfer of residential property.

What is section 54GB of the Income Tax Act?

This section allows a capital gain tax exemption arising out of the transfer of a long-term capital asset being a “residential property” if the net consideration is invested in the subscription of equity shares of an eligible company*.

Few Important Points:

  • This exemption can be claimed by an individual or HUF.
  • The residential property should be a house or a plot of land
  • The taxpayer needs to invest the consideration before the due date for filing of ITR
  • The “eligible company” should utilize the amount for purchasing a new asset* within 1 year from the date of subscription.
  • The section shall not apply to any transfer of residential property made after 31 March 2017. Also, this section is no longer available for claiming exemption after 31st March, 2022.

What is the amount of exemption available?

What happens in case of withdrawal of exemption u/s 54GB?

  • There is a lock-in period of 5 years for this exemption,i.e, the equity shares or the new asset should not be transferred before 5 years from the date of acquisition.
  • If transferred within 5 years, the exemption is revoked and the gains are taxable under the “Income from Capital Gains” head in the previous year in which the transfer took place.

What happens to the Unutilized Capital Gains (CGAS)?

If a taxpayer is not able to utilize the entire net consideration or a part of it to invest in the equity shares of the eligible company till the due date to file an ITR, he should deposit the amount in the Capital Gains Deposit Account Scheme (CGAS).
In this way, the taxpayer will be able to claim the exemption u/s 54GB for the amount already used for the purchase of equity shares as well the amount in CGAS.

However, if the taxpayer does not utilize the amount in the CGAS within 1 year from the date of subscription of the equity shares, the same shall be taxable under the “Income from Capital Gains” head.

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