Capital Gain Exemption U/s 54

[puneet virmani]

Mr. Rajinder incurred a Long Term capital gain of Rs.2250000/- from sale of residential property during the Financial Year 2011-2012. He invested Rs.2500000/- in new residential flat with in 4 months of the said Capital Gain i.e in 2011-2012 only and taken exemption U/s 54 of the I.T Act .   NOW as the property newly purchased not suited him for any personal resons, he want's to sell that property for 2500000/- without any gain or loss and purchase new property for Rs.3000000/-. Whether he will be entiltled for exemption U/s 54 of the I.T Act or the exemption will be forfeited.

 

         

[CAGOPALJI AGRAWAL]

In such case, the exemption would be taken back. The cost of new propery would be taken net of exemption and the difference would be treated as short term capital gain hence no further deduction is allowed.

AI Summary

Capital Gain Exemption may be withdrawn when a replacement residential property is sold and net cost treated as taxable gain.
When a replacement residential property that had secured a capital gains reinvestment exemption is sold, the prior exemption is withdrawn; the cost of that replacement property is taken net of the exemption and the resulting difference is treated as a short term capital gain, with no further deduction allowed.