Taxpublishers.in - Monday Corner Answer to the Quiz for the week (10 Feb 2025)

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Quiz for the week (10 Feb 2025): Ashok a resident individual sold a residential building for Rs.12 crore during the financial year 2024-25. The indexed cost of acquisition was Rs.2.60 crores and its original cost of acquisition was Rs.1.60 crores. The assessee wants to buy two residential buildings for Rs.4 crores each and paid advance of Rs.2 crores for each building. He deposited the balance amount in capital gain deposit account. How much would be the exemption available under section 54? Will your answer be different in case he had sold the vacant land instead of the residential building? Best Answer : Section 54 provides an individual having capital gain from transfer of a long-term capital asset being building or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" and the assessee has within a period of 1 year before or 2 years after the date on which the transfer took place purchased or has within a period of 3 years after that date constructed one residential house in India, he is eligible for exemption to the extent the amount of capital gain invested in acquisition or construction of the said residential house. Where the capital gain is less than Rs.2 crores the assessee may, at his option, construct or purchase 2 residential houses in India. This is an extra benefit given to the taxpayers. Where the cost of the new asset exceeds Rs.10 crore the amount exceeding Rs.10 crore shall not be taken into account for the purposes of this section i.e. for computing the exemption. The assessee in this case has long-term capital gain with indexation of Rs.9.40 crores and without indexation Rs.10.40 crores. He wants to buy 2 residential buildings of Rs.4 crores each. Firstly, one such building is to be considered for the purpose of exemption. He has paid advance of Rs.2 crores for each building and deposited Rs.2 crores each in capital gain deposit account. It is presumed that these payments and deposits have been done within the time limit. Thus, the reinvestment of Rs.2 crore by way of advance and deposit of Rs.2 crore in capital gain deposit account is eligible for exemption under section 54. The taxable capital gain hence would be Rs.5.40 crore with indexation and Rs.6.40 crore without indexation. Further proviso to section 112(1)(a) says that transfer of long-term capital asset being land or building or both which is acquired before the 23rd day of July, 2024 the income-tax computed without indexation to the extent it exceeds income-tax computed with indexation, shall be ignored. The tax liability without surcharge and HEC would be @ 20% on Rs.5.40 crore being Rs.1.08 crores and the tax liability @12.5% on Rs.6.40 crore without indexation would be Rs.80 lakhs. The rate of surcharge on capital gain exceeding Rs.5 crore is the same in both the cases. The assessee therefore has to pay tax of Rs.80 lakhs plus applicable surcharge and HEC. In case the assessee has sold vacant land then the exemption would be with reference to section 54F and for which it would be the net sale consideration reinvested and not with reference to capital gain dealt with in section 54. If the assets sold is a vacant land the assessee can claim exemption based on the proportion of net sale consideration invested in acquisition of new residential building. In Mrs. Kamla Ajmera v. Pr.CIT 2024 TaxPub (DT) 6706 (Del-HC) the assessee sold a plot of land and invested in two adjacent flats. The claim of exemption under section 54F was limited to only one out of two flats purchased by the assessee. If this decision is applied the assessee is eligible to claim exemption to the extent of Rs.4 crores reinvested in acquisition of a residential flat. The quantum of exemption would be = amount reinvested X capital gain / net sale consideration being Rs.4 crore X Rs.10.40 crore / Rs.12 crore = Rs.3.47 crores. The net taxable long-term capital gain would be Rs.6.93 crore (Rs.12 crore less cost without indexation Rs.1.60 crore less exemption under section 54F Rs.3.47 crore).

Quiz for the week (10 Feb 2025):

Ashok a resident individual sold a residential building for Rs.12 crore during the financial year 2024-25. The indexed cost of acquisition was Rs.2.60 crores and its original cost of acquisition was Rs.1.60 crores. The assessee wants to buy two residential buildings for Rs.4 crores each and paid advance of Rs.2 crores for each building. He deposited the balance amount in capital gain deposit account. How much would be the exemption available under section 54? Will your answer be different in case he had sold the vacant land instead of the residential building?

Best Answer :

Section 54 provides an individual having capital gain from transfer of a long-term capital asset being building or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" and the assessee has within a period of 1 year before or 2 years after the date on which the transfer took place purchased or has within a period of 3 years after that date constructed one residential house in India, he is eligible for exemption to the extent the amount of capital gain invested in acquisition or construction of the said residential house.

Where the capital gain is less than Rs.2 crores the assessee may, at his option, construct or purchase 2 residential houses in India. This is an extra benefit given to the taxpayers. Where the cost of the new asset exceeds Rs.10 crore the amount exceeding Rs.10 crore shall not be taken into account for the purposes of this section i.e. for computing the exemption.

The assessee in this case has long-term capital gain with indexation of Rs.9.40 crores and without indexation Rs.10.40 crores. He wants to buy 2 residential buildings of Rs.4 crores each. Firstly, one such building is to be considered for the purpose of exemption. He has paid advance of Rs.2 crores for each building and deposited Rs.2 crores each in capital gain deposit account. It is presumed that these payments and deposits have been done within the time limit. Thus, the reinvestment of Rs.2 crore by way of advance and deposit of Rs.2 crore in capital gain deposit account is eligible for exemption under section 54.

The taxable capital gain hence would be Rs.5.40 crore with indexation and Rs.6.40 crore without indexation.

Further proviso to section 112(1)(a) says that transfer of long-term capital asset being land or building or both which is acquired before the 23rd day of July, 2024 the income-tax computed without indexation to the extent it exceeds income-tax computed with indexation, shall be ignored.

The tax liability without surcharge and HEC would be @ 20% on Rs.5.40 crore being Rs.1.08 crores and the tax liability @12.5% on Rs.6.40 crore without indexation would be Rs.80 lakhs. The rate of surcharge on capital gain exceeding Rs.5 crore is the same in both the cases. The assessee therefore has to pay tax of Rs.80 lakhs plus applicable surcharge and HEC.

In case the assessee has sold vacant land then the exemption would be with reference to section 54F and for which it would be the net sale consideration reinvested and not with reference to capital gain dealt with in section 54. If the assets sold is a vacant land the assessee can claim exemption based on the proportion of net sale consideration invested in acquisition of new residential building.

In Mrs. Kamla Ajmera v. Pr.CIT 2024 TaxPub (DT) 6706 (Del-HC) the assessee sold a plot of land and invested in two adjacent flats. The claim of exemption under section 54F was limited to only one out of two flats purchased by the assessee.

If this decision is applied the assessee is eligible to claim exemption to the extent of Rs.4 crores reinvested in acquisition of a residential flat. The quantum of exemption would be = amount reinvested X capital gain / net sale consideration being Rs.4 crore X Rs.10.40 crore / Rs.12 crore = Rs.3.47 crores. The net taxable long-term capital gain would be Rs.6.93 crore (Rs.12 crore less cost without indexation Rs.1.60 crore less exemption under section 54F Rs.3.47 crore).