Under Section 54 ITA 1961, EXEMPTION from CAPITAL GAINS on transfer of a residential house is available if:
Ano condition is required (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54)
Bnew RESIDENTIAL HOUSE is purchased within 1 year before, or 2 years after, the date of transfer; OR constructed within 3 years after the date of transfer; subject to deposit in Capital Gains Account Scheme if not used immediately
Cinvestment in business (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54)
Dinvestment in shares (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54) (cf. Income Tax Act 1961, Section 54)
Answer & Solution
Correct answer: B. new RESIDENTIAL HOUSE is purchased within 1 year before, or 2 years after, the date of transfer; OR constructed within 3 years after the date of transfer; subject to deposit in Capital Gains Account Scheme if not used immediately
1. Section 54 Income Tax Act 1961 provides exemption from CAPITAL GAINS on transfer of a residential house if:
2. (i) The transferor PURCHASES another residential house within 1 YEAR BEFORE or 2 YEARS AFTER the date of transfer; OR CONSTRUCTS one within 3 YEARS AFTER the date of transfer;
3. (ii) If not used immediately, capital gains MUST BE DEPOSITED in the Capital Gains Account Scheme;
4. (iii) The exemption is LIMITED to the AMOUNT OF CAPITAL GAINS or the cost of the new property, whichever is lower.
5. Section 54B: similar exemption for transfer of agricultural land used for cultivation (Rs 10 crore cap for residential property + 2 new houses option).
6. Section 54EC: exemption on investment in NHAI/REC bonds up to Rs 50 lakh.
7. Section 54F: similar to 54 for any LTCG (not house) — entire net consideration must be invested.
8. Hence option B is correct.
_Source: CS Executive Paper 4 Tax Laws (ICSI BoS) + Income Tax Act 1961 + CGST Act 2017 — Income Tax Act 1961, Section 54_
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