Exemption u/s 54 available only once in lifetime? Rs. 2 crore limit

In India investment in property is a very common thing and many people earn huge amount of money from buying and selling of property. However it also attracts tax and capital gain tax and its planning is a huge concern for many people.

Out of which section 54 is one of the favorite among the people for planning their taxation as it talks about long term capital gain from sale of house.

However after a recent amendment by Finance Bill, 2019 there has been a confusion in minds of people as to whether benefit u/s 54 is available only once in lifetime? Let’s first understand the background of section 54:

It deals with capital gain earned by Individual and HUF from a long term capital asset being a residential house, the income from which is chargeable under the head “Income from House Property”. For claiming exemption from such capital gain the assessee needs to invest in a residential house by purchasing the same 1 year prior or 2 year after the date of sale or constructing a house within 3 years from the date of sale.

The amount of exemption would be amount of capital gain or amount invested in new house whichever is lower.

Now the main issue before the CBDT was many people were investing in multiple houses and declaring them as single unit and claiming exemption u/s 54. Various case laws are as follows:

CIT vs. D. Ananda Basappa 309 ITR 329 (Kar.)

CIT v. Raman Kumar Suri (2013) 81 DTR 33

ACIT v. Deepak S. Bheda (2012) 52 SOT 327 (Mum.)(Trib.)

Gita Duggal case 257 CTR 208 (Del) (2013)

Therefore to address this issue and to ease the confusion, CBDT inserted a proviso in section 54 which can be read as under:

“Provided that where the amount of the capital gain does not exceed two crore rupees, the assessee may, at his option, purchase or construct two residential houses in India, and where such option has been exercised,—

(a) the provisions of this sub-section shall have effect as if for the words “one residential house in India”, the words “two residential houses in India” had been substituted;

(b) any reference in this sub-section and sub-section (2) to “new asset” shall be construed as a reference to the two residential houses in India:

Provided further that where during any assessment year, the assessee has exercised the option referred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.”

Thus the two proviso inserted above gives an option to assessee to claim exemption u/s 54 by investing in two separate house if the amount of capital gain is below Rs. 2 crore, however such option shall be available only once in lifetime as per second proviso.

Thus only the above proviso to invest in 2 residential house if the total capital gain is below 2 crore is a once in a life time option and not the entire section 54 as many people interpreted the same.

Also this proviso didn’t still clarify on the issue regarding investment by an assessee in two or more house and making them a single unit. Thus till the time we receive any clarification from CBDT we can rely on above judgement’s and claim such exemption.

 

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