1. Section 54 of the Income Tax Act of India provides for tax exemptions on capital gains arising from the transfer of a long-term capital asset (such as a house property) if the gain is invested in a new residential property. In order to claim the exemption under Section 54, the following conditions must be met:
1. The transfer of the original asset must result in a long-term capital gain.
2. The new residential property must be purchased within a specified period, which is within 2 years before or after the date of transfer of the original asset.
3. The entire capital gain must be invested in the new residential property and the property must be held for a specified period, which is 3 years from the date of transfer of the original asset.
If these conditions are met, you may claim the exemption on the capital gain arising from the transfer of the house property, subject to the conditions specified under the Income Tax Act.
2. In case of Investment made in 2 residential properties then the exemption shall be available if the amount of long-term capital gains do not exceed Rs. 2 crores. This option is once in a lifetime and the assesses shall not be entitled to exercise this option again for the same or any other assessment year.
3. If a taxpayer purchases/constructs a house and claims exemption under section 54 and then transfers the new house within a period of 3 years from the date of its acquisition/completion of construction, then the benefit granted under section 54 will be withdrawn the amount of capital gain claimed as exempt under section 54 will be deducted from the cost of acquisition of the new house.
4. If till the date of filing the return of income, the capital gain arising on the transfer of the house is not utilized (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the unutilized amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains Deposit Accounts Scheme, 1988 (hereafter referred as Capital Gains Account Scheme). The new house can be purchased or constructed by withdrawing the amount from the said account within the specified time limit of 2 years or 3 years, as the case may be.
The recent changes proposed by Union Budget 2023 will be applicable from Assessment Year 2024-25.