An individual earned long-term capital gains of Rs 12 crore on selling a residential house and bought a new residential house for Rs 14 crore. The exemption under section 54 is:
ARs 12 crore
BRs 10 crore
CRs 14 crore
DRs 2 crore
Answer & Solution
Correct answer: B. Rs 10 crore
1. Section 54 exempts the lower of the capital gains and the cost of the new residential house.
2. However, the cost of the new asset is capped: where it exceeds Rs 10 crore, the amount exceeding Rs 10 crore is ignored.
3. Deemed cost of new house = Rs 10 crore (actual Rs 14 crore, capped).
4. Exemption = lower of gains (Rs 12 crore) and deemed cost (Rs 10 crore) = Rs 10 crore.
5. Chargeable LTCG = 12 - 10 = Rs 2 crore.
6. Option A ignores the Rs 10 crore cap introduced for high-value reinvestments; option D misreads the Rs 2 crore two-house threshold as an exemption ceiling — it only decides whether TWO houses may be bought.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 4 Capital Gains, PDF p. 69_
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