Yes, you heard it right. To start with, let me tell you, section 54 and section 54F provide opportunity to tax payer to save tax on long term capital gains out of sale of residential house property or a property other house property by investing in new residential house property. But so far, it wasn’t clear whether new residential house property should only be situated in India or it is even accepted for an investment into a residential house property situation in a foreign land.

The existing provision of section 54 subsection (1) provides that where capital gain arises from the sell/transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of 1 year before or 2 years after the date of sell/transfer, purchases, or within a period of 3 years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is exempted from tax under section 45 of the Act.

Residential-Property-in-India

As per current provision of section 54F with regards to sell/transfer of a long-term capital asset, which is not a residential house, such as Gold, unlisted Shares, Bonds ect, any gains (LTCG) out of such sell/transfer will not be taxable if entire consideration/sale proceeds has been invested in a residential house property within a period of 1 year before or 2 years after the date of sell/transfer or within a period of 3 years after the date of sell/transfer constructs, a residential house property. In case entire sale proceeds are not invested then only portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer will be allowed as exempted.

So far it has been an ambiguity that where the new house property should be located to avail the benefits as stated above because the provision itself is silent about the geographical location of a new property. So tax payer and assessing officer get into fight to justify such ambiguities.

What Budget 2014 brought for you?

Of course not a good news for some! As per the new proposal in budget 2014, it has been clarified about the location of the new residential house property. It is now clear that, to avail benefits u/s 54 & 54F, purchase of one new residential house property should be situated within India.

Further it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the roll over relief under the said section is available if the investment is made in one residential house situated in India. It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India.

Text of Amended Section 54: In section 54 of the Income-tax Act, in sub-section (1), for the words “constructed, a residential house”, the words “constructed, one residential house in India” shall be substituted with effect from the 1st day of April, 2015.

Text of Amended Section 54F: In section 54F of the Income-tax Act, in sub-section (1), for the words “constructed, a residential house”, the words “constructed, one residential house in India” shall be substituted with effect from the 1st day of April, 2015.

It has also been stated that these amendments will take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years.

Long Term Capital Gains Tax: No exemption allowed if you buy house property outside India

21 thoughts on “Long Term Capital Gains Tax: No exemption allowed if you buy house property outside India

  • August 8, 2014 at 12:59 PM
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    my father had a land : flat in his name.as my father expired on 2000 year the property was shown to my mother account statement and thereof we filed the accounts till 2011-2012.
    in the year 2012 we sold one of the land and the purchase value was 1.5 lakhs and to which we sold at 69 lakhs..we got a long term capital gain of 68lakhs approx..we didnot invest in the bonds/flat purchase in the year 2012 and 2013…but recently in 2014 we purchased a on going project residential in the year 2014..we would like to know that the land which was inherited from fathers expiry to mothers name…is my my mother purchase of house in 2014 will be eligible to save long term capital gain..and if yes kindly get me the provision for the same.
    your reply and comment will be highly appreciated.
    atishay

    Reply
    • August 8, 2014 at 1:34 PM
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      Hi Atishay,

      As per section 54F, you were supposed to get the sale proceeds of the land invested within 1 year prior or within 2 years (3 years if construction) from the date of sell/transfer of the property sold. You could have put it into CG Scheme account if no investment happened by the end of the filing due date for the financial year in which the said property got sold. But it seems nothing had happened. Now I don’t thing declaring the the gains now to take deduction by way of purchase of new property will get you some benefits, rather demand may raise for unpaid tax payment.

      Now the tax liabilities would be in the hands of your mother.

      Reply
  • August 20, 2014 at 10:09 PM
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    I have purchased residential property “A” in 2006-2007, I again purchased a property “B” in 2011-2012 50 % paid by me in my name & 50 % paid by wife in her name.

    Now i sell property “A” in 2014-2015 & buy a new property against that capital gains as i was residing in porperty “A”. So is this exempt?

    Reply
    • August 21, 2014 at 8:04 PM
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      Hi Parag,

      House “B” doesn’t have any role here. Exemption will be allowed!

      Reply
  • August 30, 2014 at 1:11 PM
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    the amendment is effective 1st April 2015. Can I sell my India property till 31st March 2015 and make investment in house outside India till 31st March 2017, and yet not pay capital gains tax?

    Reply
    • September 7, 2014 at 6:45 PM
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      Hi Rohan,

      This is on the edge! Also you are buying new house in foreign land after 31st March 2015, but not before. Eventually AO has to approve. I can’t confirm.

      Reply
  • September 10, 2014 at 11:15 PM
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    This is with regard to LTCG. I am selling a residential flat which I had purchased 10 years ago. Last year, I had purchased a house and have taken a loan also. however, now I am planning to switch to a bigger house in the same locality and builder has agreed to it. So, primarily, I am planning to repay the loan for a property which has been cancelled by me and builder would be transferring the money to the new house in the same locality. So, in this case whether I will get the benefit to save LTCG.

    Reply
    • September 11, 2014 at 5:28 PM
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      Hi Nithin,

      You need to use LTCG money for buying one property. Stated adjustment will attract unwanted scrutiny from the IT Dept. Better to use the money in new property formally.

      Reply
      • September 11, 2014 at 8:53 PM
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        Thank you for your prompt case.

        Just wanted to clarify one more point. If you look at, I am using the money against one property only. I will be repaying the loan with the new money first. Once done, then will work with builder and bank, and transfer the old property to a new buyer/builder and adjust the money paid already to the new building. I am still working on this plan though. Also, since price for the old property, which is not registered yet on my name, has not appreciated, hopefully there would not be any STCG. Please let me know your inputs, if this is feasible.

        Reply
        • September 11, 2014 at 10:46 PM
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          Hi Nitin,

          That’s why I used the word “FORMALLY” 🙂
          Sounds feasible.

          Reply
          • September 12, 2014 at 10:36 PM
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            Thank You so much for your time. Highly appreciated.

            Thanks
            Nitin Jha

  • September 17, 2014 at 6:12 AM
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    I have got a property ‘A’ in native andb ‘B’ in outskirts of city, both the places I am not staying and the same is neither rented out. Can I sell both and buy one property in heart of city and avail capital gains of both the properties A and B sale against the new one. The property value is higher than both A and B put together and I would avail balance loan.

    Reply
    • September 18, 2014 at 6:04 PM
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      Hi Venugopal,

      In your case, you will get tax exemption (in case of LTCG) only through one house sell and one house buy, not through two houses sell and one house buy.

      Reply
  • December 15, 2014 at 11:57 PM
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    sir,
    as per 54f I purchased a flat by using 90% of the capital gain the tax remaining amount paid.can I purchase one more residential property by my own money(I have two residential properties at present.one property by using long term gain 54f)
    thanks in advance
    manoj

    Reply
    • December 16, 2014 at 10:20 PM
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      Ni Manoj,

      Here you can off-set tax on LTCG through purchase/construction of one house property only, but not more.

      Reply
  • February 24, 2015 at 6:58 PM
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    If my period between purchase and sale is 27 months, can i still get the benefit of ‘within two years’? The purchase is within the second financial year. Thanks.

    Reply
    • March 1, 2015 at 9:25 PM
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      Hi Sanjeev,

      Purchase of house property should be within two years from the date of sale (i.e. 24 months). You may miss the opportunity in your case.

      Reply
  • March 4, 2015 at 5:47 PM
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    Can one invest in one house property outside India before 01.04.2015 out of LTCG derived by sale of land in India.

    Reply
    • March 5, 2015 at 8:53 AM
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      Hi Rohit,

      It will not be allowed!

      Reply
  • July 31, 2015 at 2:07 PM
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    Dear Mr. Soubhagya Kumar,

    I would like to know whether we can use Long-term capital gain for any commercial activity such as buying plot/shares and liquidate them and then file returns as per schedule (i.e., July 31 of applicable financial year) with depositing in CG account or buy residential property to claim exemption under sec. 54F.

    Reply
    • August 15, 2015 at 9:55 AM
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      Hi Prasad,

      You will have to buy Residential House Property, Invest in CG scheme account or Invest in 54EC bond as applicable.

      Reply

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