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Capital Gains – Section 54 & Section 54F


Capital Gains – Section 54 & Section 54F. Find Complete details for Capital Gain Section 54 and Section 54F – Exemption from Long Term Capital Gain . I have heard the above quote a million times before, but never thought they would be so true until when my articleship started, where I came across a number of interesting as well as distressing situations in the Income Tax Act, 1961. I found one such issue worth discussing about claiming an exemption u/s 54 vis a vis 54F & how both the sections got drastically affected by section 50C. Now you can scroll down below and check complete details regarding Capital Gains – Section 54 & Section 54F

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Capital Gains – Section 54 & Section 54F

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Let us have a look at the Relevant sections of the Indian I.T. Act, 1961 :

Section 50C:

If a property is transferred for a consideration lower than the value assessed by the Stamp Valuation Authority, then such assessed value will be deemed to be the Full Value Consideration for computing Capital Gains U/s 48.

Yeah, we all know this, but it is not as easy as you think! Now we come to some bigger hurdles of our way! As far as exemption from Long Term Capital Gains (LTCG) is concerned,

  • u/s Section 54: The amount of LTCG is relevant.
  • u/s Section 54F: The amount of Net Sale Consideration is relevant.

The applicability for exemption under any particular case depends upon the subject matter of transfer. If it is a residential House Property, exemption u/s 54 could be available, while if it is other than a Residential House, exemption u/s 54F could be enjoyed!

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Let us have a look at a hypothetical case with hypothetical figures.

If you sell a property (may be rented, disputed or clear) for say Rs. 35 Lacs while its valuation by the Stamp Valuation Authority is Rs. 65 Lacs and your indexed cost of acquisition is Rs. 25 Lacs.

Then, by virtue of Section 50C, Full Value Consideration u/s 48 shall be deemed to be Rs. 65 Lacs & not Rs. 35 Lacs.) Thus, U/s 48,

LTCG = Rs. 65 Lacs – Rs. 25 Lacs = Rs. 40 Lacs.

If it is a Residential Property, then you can claim exemption U/s 54 by investing the amount of Capital Gains, i.e. Rs. 40 Lacs in the new House Property though the actual Sale Consideration received is Rs. 35 Lacs i.e. Investment required is more than the amount of actual Sale Consideration received.

If it is a property other than a Residential house, then you need to invest the entire Net Consideration, i.e. Rs. 35 Lacs in the new asset within the specified time U/s 54F.  So, we can say, the amount to be invested for the purpose of claiming an exemption u/s 54F is the amount of actual Sale Consideration received & NOT DEEMED FULL VALUE CONSIDERATION as adopted by virtue of section 50C.

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Isn’t it interesting to note that section 50C refers only to section 48 for deeming the Full Value Consideration & not to section 54F [(Mrs.  Nila V. Shah v/s. Commissioner of I.T. (Appeals)]. Deeming provisions require very strict interpretations and the Net Consideration for the purpose of section 54F would mean the actual Sale Consideration & not any deemed figures!!

By investing the amount for the purchase of a House Property, exemption u/s 54F could be claimed with an amount of Rs. 35 Lacs only; whereas an investment of Rs. 40 Lacs would be required for exemption u/s 54 which is even more than the amount of actual Sale Consideration received! This is the magic of the Act which makes us wonder how things would turn out for every little change that takes place!! Probably, outcome like this would have made Einstein to whisper the above quoted quote!

Hmm.. It sounds a bit illogical; and I have learnt that everything’s that’s logical is not the law!!

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About CA Ridhi Dhoot

The writer is a Chartered Accountant & a Licentiate Company Secretary. You can reach out to her at [email protected]

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