Parthasarathy had sold some shares from his HUF account in May 2023 when the markets did very well after a bear phase in March 2023. This resulted in huge long term capital gains. Considering the current trend and risk atmosphere, Partha wants to know what would be the best option for him.
Long term capital gains accrued from sale of equity shares are exempt up to Rs. 1 lakh in a financial year. Beyond 1 lakh, the long term capital gains are taxed at flat 10% (subject to grandfathering conditions). Sec 54F provides for exemption from Long term capital gains if investment is made in a house property.
As far as investments are concerned, Land and building are considered as safe haven. Post COVID19 after a lot of reforms by RBI, the real estate sector has picked up and there are a lot of options for a keen buyer. Since Partha has a huge long term capital gains from sale of equity shares, it would be ideal if he can set it off by investing in a house property and claim the 54F exemption.
SEC 54F EXEMPTION:
Capital gains arising on sale of any long term capital asset shall be exempted u/s 54F if investment is made in ONE residential house property in India. Exemption available on the condition that the taxpayer (Parthasarathy(HUF)) does not own more than one residential house property at the time of purchase of the new house property.
WHO CAN CLAIM ?:
An Individual or HUF can claim exemption u/s 54F. Since the shares were sold from Partha’s HUF account, exemption can be claimed u/s 54F in the return of income of the HUF filed for AY 2021-22
TIME LIMIT
The new house property should be purchased within 1 year before or 2 years after the transfer of the capital asset. If constructed, the new house property must be constructed within 3 years from the date of transfer of the capital asset.
AMOUNT OF EXEMPTION
If amount invested in the new house property is more than the net sale consideration on sale of shares, entire capital gains shall be exempt u/s 54F. If amount invested in the new house property is less than the net sale consideration from sale of shares, then exemption shall be proportionate.
NOTE:
The new house property should not be transferred within 3 years from the date of its purchase.
Within 3 years from the date of transfer of original asset (shares), Partha should not complete construction of another residential house property in HUF books.
Partha should not purchase another residential house property in HUF books within 2 years from the date of sale of the original asset (shares)
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