Eligible Assessee

Individual or HUF

Nature of Asset Transferred & Period of its Holding

               The asset transferred should be a residential house, the income from which is chargeable u/h 'income from house property'.

               The residential house so transferred should be a long-term capital asset.

               Therefore, exemption u/s 54 is available in respect of long term capital gains arising from the transfer of a residential house.

Qualifying Assets, Time Limit for its Acquisition

The assessee should purchase/construct one residential house in India within the following time limits:

               In case of purchase: 1 year before or 2 years after the date of transfer

               In case of construction: 3 years after the date of transfer

Section 54H: Where an asset has been compulsorily acquired by the Government, the period of investment shall be computed with reference to the date of receipt of compensation (date-of compulsory -acquisition).

Amount of Exemption

Lower of the following two shall be available as exemption:

               Amount of long-term capital gains; or

               Amount invested in the purchase/construction of one residential house

Capital Gains Account Scheme, 1988

               The amount of capital galas, which is not utilized by the assessee for purchase/ construction of a new house till the due date of furnishing of ROI, should be deposited by him under Capital Gains Account Scheme till the last date of furnishing ROI. If the amount is not so deposited, capital gains would become taxable.

               The amount deposited in Capital Gains Account Scheme should be withdrawn and utilized for the specified purpo5e within the prescribed time period. Otherwise, the unutilized amount shall be considered to be LTCG of the previous year in which such prescribed time period has expired.


Example: Mr A has transferred a long-term residential house on 01.10.2017. The time limits for acquiring one residential house for availing exemption u/s 54 are:

Ø  In case of purchase: 01.10.2016 to 30.09.2019

Ø  In case of construction: 01.10.2017 to 30.09.2020

Let's suppose that 31.07.2018 is the due date of filing ROI for PY 2017-18 in Mr. W's case. I

f Mr. A has not invested any amount till 31.07.2018 and he wants to claim exemption u/s 54, he should deposit the amount in CGAS by 31.07.2018.

                  If the amount deposited in CGA5 is not utilized by 30.09.2020, the unutilized amount shall be taxable as LTCG during PY 2020-21.


Withdrawal of Exemption

                    The new house so purchased/constructed should not be transferred for a period of 3 years from the date of its purchase/construction.

                    Otherwise, at the time of computation of capital gains on the transfer of the new house, the cost of acquisition of the new house shall be reduced by the amount of exemption allowed earlier u/s 54. Accordingly, the amount of capital gains would increase.


Mr. A transferred a long-term residential house on 01.10.2017. He bought a new house for Rs 20 lakhs on 01.02.2018 and an exemption of Rs 15 lakhs was allowed to him u/s 54. The new house is transferred by Mr A on 01.05.2019 for Rs 45 lakhs. The COA of the new house shall be recomputed as Rs 5 lakhs (20L - 15L). Accordingly, an amount of Ps 40 lakhs (45L - 5L) would be taxable as STCG during PY 2019-20.

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