asset (Sec.

54 EC)
I5| Capital gains on transfer of any long-term Capital
As already explained carlier Sec. 54 provides exemption only in respect of
long-term capital gain arising on transfer ofa residentiz Ihouse property, whileSec
54 EC provides exemption in respect of any long-term capital asset (being land o
building or both).
Conditions Exemption under this section is available only if the followind
condition are satistied
(1) Asset (or assets) transferred by any tax-payer is a long-term capital assel
(may be residential or commercial house, may be situated in India or outside
India)
(2) Such asset (or assets) has been transferred during the previous ycar.
(3) The assessee must have invested the whole or any part of capital gain, within|
a period of six months from the date of transfer, in the long-term specified
assets.

(4) Investment made in long-term specified assets (considered for the purpose
of exemption under this section) shall not be eligible for deduction
Sec. 80C.
under
Note: Long-term specified asset means any Bonds issued and notified by the Central
Government after 31st March, 2006 by:
(i) The National Highways Authority of India (NIHAI); or
(ii) The Rural Electrification Corporation Ltd. (RECL); or
(iii) Any other notificd Bonds.
Note : The investment (in such bonds) made
by an assessee in the long-tern specified
asset during the financial year in which the
original asset is transferred & in the
following financeial year does not exceed Rs. 50 lakhs.
Amount of Exenmption:
(1) 1f the cost of
long-term specified asset (bonds) is equal to or more than the
amount of capital gain, the entire
gain shall be considered exemption.
(2) If the cost of long-term specified
asset (bonds) is less than the amount
capital gain, the actual amount invested in bonds shall be of
considered
Cxemption and the differcnce of total
capital gain and cost of such
shall he taxable. bonds
ClainTEd et.

Illustration 7(A) :
his self-residential house for
On 11-10-2019, Shri Chandraswami has sold
He had bought this house in
Rs. 17,13,350. Brokerage paid amounts to 64,000.
in 2007-'08 for additional
2004-05 for Rs. 1,86,450 and had incurred Rs. 64,500
construction made.
On 1-3-2020, Rs. 10,00,000 wasinvested in 5 years bonds of National
Relevent cost inflation indices are as under
Highways Authority of India.
2004-05 113; 2007-'08 129 and 2019- 20 289.
Determine the taxability of capital gain for the assessment year 2020-21.

Solution
Computation of Taxable Capital Gain of Personal Residential House.
P. Y.: 2019-201 [A. Y.:2020-21
Rs. Rs.
Total Sales Value of personal residential house 17,13.350
Less: Specific Deductions:
Transfer charges 64,000
(1)
(2) Indexed cost of acquisition (Residential house)
[Rs. 1,86,450x 289/1131 4,76,850
(3) Indexed cost of additional construction
[Rs. 64,500x 289/129] 1,44,500 6.85,350
Long Term Capital gain from residential house 10,28,000
Less Exemption U/s 54-EC Investment
in three years' Bonds of N.HA.I. 10.00,000
Taxable Long-term Capital Gain 28,000

Note: As the investment of Rs. 10,00,000 in 5 years Bonds of NHAI is made within
six months from the date of transfer of self-residential house, partial exemption (to the
extent of actual investment made) is to be allowea Us 54-EC.
 JAIlNS 107

Note: In the absence of any information in the question it may be assumed that the shares
not subject to Securities Trans action Tax (STT).
B General Exemptions:
(1) In case of capital gain ari sing out of transfer of assets mentioned in Sec.
2047) (e.g, distribution ofcapital assets on partition of HUF etc.) 'no tax is levied
because it is not treated as transfer.'
(2) Capital gain arising from the transfer of residential house
property [Sec. 54]
Exemption can be claimed by the transferor (being an individual or HUF)
on the following conditions
(1) The asset transferred is a residential house (long-term), the income of
which is chargeable under the head "Income from House Property."
(2) The housc-property transferred is a long-term capital asset.
(3) With effect from 1-4-2020, an assessee having long-term capital gain
upto Rs. 2 crores, arising from transfer of a residential house, an one
time opportunity being provided, to utilise such LTCG for the purchase
or construction of two residential houses in India, at his option.
(4) New Asset to be acquired: The transferor has purchased or constructed
upto two residential houses in lndia within a period of one year before
or two years after the date of trans fer or has completed construction*
of upto two residential houses in India within a period of three years
from the date of such transfei, and
Note: In the case of compulsory acquisition ofsuch residential house property
the above time limits (of I year before or 2 years after or 3 ears after) are
the date of receipt of compensation (ineluding additional
applicable from
compensation.)
(5) The new residential house or houses (either purchased or constructed)
have not been transferred within a period of three years from the date
of purchase or completion of construction. In such case, the exemption
cancelled in the year of such transfer.
will stand
Amount of Exemption:
amount of the capital gain does not exceed the cost" of the new
(a) If the
houses, the entire capital gain would be considered exempt.
the cost' of the new houses,
(b) If the amount of the capital gain exceeds would be considered
the excess of capital gain (which could not be reinvested)
taxable.
should be reated as
'Construction additional floor in an existing building
of U/S S4/54F
residential unit entitled for exemption
independent 181 1TR 101 (SC).]
/P K Narasimhan commenced
residential house must have
I is not necessary that the
construction ofanother
have started even before
transfer
the transfer of old house. Construction might
after
includes the cost of land
house property also
Cost of the n e w residential
 108 CAPITAL GAINS
ars
Note: (i) The new houses shoutd not be transfered within a period of tree
s purchase or construction. 1fit is so transferred. the old exempted capilal gai
new noisE
0ecChaged to tar in the usual manner in the previous veir in which the
fhe cost
ed. y an assessee acquires another house within this period of3 years
acquisition will be reduced to the extent of exemption clained eariier
(i) Where the assessee has exercised the option of claiming exemption by investg
Coslong-term capitalgain (not exceeding Rs. 2 crores) in one or two residential houses duruig
any assessment yea, he shall not be subsequantly entitled to exercise this special opiton
for the same in ay other assessment year
Scheme of Deposit in respect of exemption U/s 54
Where an assessee wants to avail of the exemption U/s 54, he is supposed
to deposit the unutilised part of capital gain into an account with any branch
(except rural branch) of a public sector bank or IDBI. Such deposit must have
been made before the date for furnishing the return of income of the previous
year during which such capital gain arises.
If the amount so deposited is not utilised for purchase or construction of
another residential house within the time limit mentioned (3 years), the unutilised
balance is to be considered taxable at the time of expiry of such limit.
Note The above scheme is also applicable to eremption Us 54 (B)
54 (D) and 54 (F).
 Illustration 6:
Mr. Sudarshan, resident
a lot . of
individual (aged 54 years), had bought a plot

8,66,880 in July 2007. In November 2009, he had construe

land at a cost of Rs. In October, 2019, he e
house for his residence at a cost of Rs. 17,33,968.
a
house for Rs. 2,16,00,000 and purchased one residential tlat in Novembe
the residential house in February, 2020 f
2019 for Rs. 80,00,000 and another
F.nancial
CIl for 2007-08, 2009-10 and 2019-20 are 129
year 9
Rs. 66,00,000
148 and 289 respectively.
You are required to compute the taxability of long-term capital gain under

Sec. 54 for the assessment yeer 2020-21.

Solution:
Computation of taxable long-terin capital gain
.Y.:2019-20 1 A. Y. :2020-21
Rs Rs.
Full value of consideration (sale of residential house
in October, 2019) 2.16,00,000
Less :(1) Indexed cost of acquisition of land
(Rs. 8,66,880 x 289/129) 19,42,080
(2) Indexed cost of construction
(Rs. 17,33,968x 289/148) 33,85,924 53,28,004
Long term Capital Profit 1.62,71.996
Less Exemption U/s 54
(1) Cost of residential flat bought in Nov. 2019
80,00,000
(2) Cost of another residential house bought
February, 2020
66,00,000 1.46,00.000
Taxable Long-term Capital Gain 16,71,996
Note: As the LTCG on sale
of old residential house does not exceed Rs. 2
nd other conditions f section 54 are
also satisfled, the cast of two residential crores
sallowed us
exemption houses
 transfer of long-term capital asset other
(7) Capital gains on a

than a residential house property [Sec. 54-F| :

Conditions
(1) The asset is transferred by an individual or H.U.F.
(2) The asset transferred is any long-term capital asset other than a residential
house
(3) The assessee has purchased one residential house property in india within
I year before or 2 years after the date of transfer, or
has constructed within 3 years after the date of transfer, one residential house
(4) The assessee should not sell or transfer the new house within 3 years from
the date of its purchase or completion of construction.
5) On the date of transfer of original asset, the assessee
(a) does not own more than one residential house, other than the new
house (bought in advance to avail the exemption).
(b) does not purchase within one year or construct within three years
after that date any residential house, other than new hous, and
income from such residential house is chargeable under the head
(c)
"Income from house property".
Amount of Exemption
(1) If the cost of new house is not less than the net consideration of the asset
sold then the whole amount of capital gain is exempted.

S G.R. GLS(Seme-4) Taxation-8 (390) TG/BJ

 114 CAPITAL GAINS

(2) If the cost of new house is less than the net consideration of the asset
sold then only the proportionate amount is exempted.

APIVested in new house x Total long-term Canital Gain

Capital Gain Net Consideration of the asset sold

Notes : (a) 1f 1the assessee sells or transfers the new house within 3 years
above exemption is withdrawvn.
of its purchase or construction, then the
(h) Similarly, if he purchases, within a period of 1 year of the transfer of
original asset, or

(c) Constructs a residential house other than the nev house within a period
exemption is withdrawn.
of 3 years, then the above
has paid the fiull or a of consideration under
substantial part
lfthe assessee
cannot be denied even if the legal
a purchase agreement the benefit of exemption
titles are not transferred to his, name.
 Illustration 8 :
Miss Sudha sold her jewellery for Rs. 12,29,900 on 1-8-2019. The original
cost of the jewellery purchased in 2002-'03 was Rs. 1,15,500. A brokerage of
Rs. 20,000 was paid on sale of the said jewellery. From the proceeds, Miss Sudha
purchased on 1-1-2020 for Rs. 6,04,950, the residential house in which she was
staying as a tenant. Determine the amount of capital gains arising on sale of
jewellery that would be exempted from tax. Assuming that this house was
purchased at Rs. 4,03,300, what amount of capital gain would have been
Cxempted ?
The cost inflation index for the financial ycar 2002- 03 and 2019-20 are 105
and 289 respectively. Kutch Uni. - modified]

Solution:
Miss Sudha would get benetit of tax exemption U/s 54-F in of
respect
capital gains.
Rs.
Proceeds of Long-term Capital Asset (jewellery) 12.29,900
Less: Brokerage
20.000
Net consideration
12,09,900
Less: Indexed Cost of Capital Assets
3,17,900
Long-term capital gain on 1-8-2019 8,92.000
Index of the year of sale
*Indexed cost of acquisition =
Original Cost x
Index of the year of purchase
289
=1,15,500 x 105 Rs. 3,17,900
 CAPITAL GAINS 1 115

As the purchase price of a residential house purchased within the stípulated

periodof 1 year is less than the net consideration of the capital asset sold; tax
exemption would be on proportionate basis
Purchase price
The exempted amt.= Total Capital Gain x
Net Consideration

6,04,950
=
Rs. 8,92,000 X
12.09,900
= Rs. 4,46,000

and the balance of Rs. 4,46,000 will be taxed under the head 'Capital Gain".
Ifthe house is bought for Rs. 4,03,300, the exemption U/s 54 (F) would have
been Rs. 2,97,333 (Rs. 8,92,000 x 4,03,300/12,09,900) and balance of Rs. 5,94,667
Would have been considered taxable.
capital profits o1ly Jor a MaxmUm perioa of 8 years.

Illustration 10
From the following particulars of income of Shri Chanakya, determine his
income under the head capital gain for the assessment year 2020-21
(1) Shri Chanakya had purchased a residential house for Rs. 4,68,000
on 1-1-2006. le sold this house on 1-4-2019 for Rs. 17,13,000. This was the
only house owned by him. A part of the sale proceeds was utilised by him for
the education of his son and Rs. 5,60,000 was used on 31-12-2019 to acquire
another residential house.
(2) On 31-12-2019, he sold some of the Securities for Rs. 3,58,525 which
were purchased by him on 1-3-2004 for 65,400. Rs. 1,00,000 of the sales price
was invested on 1-2- 20 in 3-year Bonds (notified by the government).
emw
Relevant Cost Inde for long term Capital Gain are as BUsi
follewsss Man,
P.Y. 2003- 04 109 nagoneme
P.Y. 2005-'06 117
BRARY

P.Y. 2019-20 289

OucaS S15
 118 CAPITAL GAINS

Solution:
Chanakya
Statement of Income under the Head Capital Gain of Shri tC

Previous Year: 2019-20 c

Individual Assessment Year 2020-21
Ordinary Resident

Rs. Rs.
Residential house (1-4-2019)) 17.13,00o
(1) Sale of self-occupied
Less : Specific deduction
11,56,000
Indexed cost ofacquisition [Rs. 4,68,000 x 289/117]
Long-term capital gain from
Self-occupied Residential house 5.57,000
5.57,000
Less: Exemption U/s 54 (Note 1)
house
Nil
Taxable Capital Gain from S. O.
3.28.525
(2) Sale of securities (31-12-2019)
Less :Specitic Deductions
289/1091 1.73.400
Indexed cost of acquisition [Rs. 65,400 x

Govt. Securities 1.55.125

Long-term Capital Gain from
Actual Investment 1.00.000 55.125
Less Exemption U/s 54-EC (Note 2)
To tal Taxable Capital Gain 55.125
made on sale of residential house for self
Notes : (1) Long-term capital gain
residence has been imvested fully i/s 5, and so it is wholly exempted.
(Rs. 1,00, 000) has been mnediately invested in
(2) As a part of the sale proceeds
allowved to that extent
years Bonds of NMIA, eremption /s 54-EC has been
 12. Find out the
taxable capitai gain and exemption U/s 54 F for the A.
2020-21 froni the details given below Y.
by Anamika
Date Purchase Sales Sales
Assets of Price Price Expenses
Purchase
(Rs.) (Rs.) (Rs.)
(1) and situated in Surat City 1-1-02 I.00.000 5.90.000 750
(2) Jeweilery 1-1-06 4.8.3.913
(3) Saarcs ol Rardoli 12.61.088

Sugart:iory 1-1-11 2.07.213 9.48.326 900

(4) 1isted deientures
ofa conpny 1-111
(5) nlisted tlehentures of company 1.26.650) 2.27.000 350
1-1-14 2.61.237 .06.478
(6) Residenti:! at
2-11-19 27.11.714
 CAPITAL GAINS 155

On 1-11-19, all the above assets (excluding residential flat) were sold. Security
transaction tax has not been charged on sales of all the securities. The cost-inflation
Index nun.bers are as under
2001-'02: 100 2011-11: 167
2005-'06: 117 2019-20 : 289
(S.GU.; Sau. Uni. - modified)
Ans.: Taxable Long-term Capital Profit Rs. 2,40,000; Exempted L. T. Capital
Profit (U/s 54F) Rs. 9,60,000.
Statement showing total long-term capital gain

(1) 2) 3) (4) (5) (6)

Assets Sales Sales Net Consi- Indexed Cost L.T.
Value Exps. deration of acquisition Capital Gain
(2-3) (4-5)
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
(1) Land 5,90,000 750 5,89,250 1,00,000 x 289/100 =
Rs. 2,89,000 3,00,250
(2) Jewellery 12,61,088 12,61,08 4,83,915 x 289/117 =
Rs. 11,95,311 65,777
(3) Shares 9,48,326 900 9,47,426 2,07,215 x 289/167=
Rs. 3,58,594 5,88,732
(4) Listed 2,27,000 350 2,26,650 No Indexation
debentures Rs. 1,26,650 1,00,000
(5) Unlisted 4,06,478 4,06,478 No Indexation
dehentures Rs. 2.61,237 1,45,241
Total 34,30,892 12,00,000
Exempted Capital Gain U/s 54F= Total L. T. Capital Gain x Cost of new residential
house/ Net considcration = Rs. 12,00,000 x 27,44,714/34,30,892 Rs. 9,60,000.1