Information About Deduction Claimed Against Capital Gains of Deduction under 54 during ITR filing
Section 54 of the Income Tax Act, 1961
Section 54 provides tax exemption on long-term capital gains (LTCG) from the sale of a residential property if the gains are reinvested in purchasing or constructing another residential property. Here are the key details about Section 54:
Eligibility:
- Eligible Assessee: Individuals and Hindu Undivided Families (HUFs).
- Asset Sold: A long-term residential property (held for more than 24 months).
- Asset Purchased/Constructed: Another residential property in India.
Conditions:
- Purchase: The new residential property must be purchased either 1 year before or 2 years after the date of transfer of the original property.
- Construction: The new residential property must be constructed within 3 years from the date of transfer of the original property.
- Holding Period: The new property must be held for at least 3 years from the date of purchase or construction.
Amount of Exemption:
- The exemption amount is the lesser of the capital gains amount or the cost of the new residential property.
- If the entire capital gains amount is not utilized for the purchase or construction, the unutilized amount will be taxed as LTCG.
Capital Gains Account Scheme:
- If the capital gains are not fully utilized by the due date of filing the income tax return, the unutilized amount must be deposited in a Capital Gains Account Scheme (CGAS) in a bank.
- The deposited amount must be used within the specified period (2 or 3 years) for the purchase or construction of the new residential property.
How to Claim Deduction Under Section 54 in ITR Filing
Steps to Claim Deduction in ITR:
- Calculate Capital Gains:
- Determine the full value of consideration received from the sale of the original property.
- Deduct expenses incurred exclusively in connection with such transfer.
- Subtract the indexed cost of acquisition and indexed cost of improvement (if any).
- Utilize Capital Gains:
- Purchase or construct a new residential property within the specified time frame.
- Deposit the unutilized capital gains in CGAS if not utilized by the due date of filing the return.
- Filing ITR:
- Select the appropriate ITR form (e.g., ITR-2 for individuals with capital gains).
- Fill in the details of the original property sold and the new property purchased/constructed under the ‘Capital Gains’ section.
- Mention the amount of capital gains and the amount claimed as deduction under Section 54.
- If the entire capital gains amount is not utilized, mention the amount deposited in CGAS.
Example:
Let’s assume you sold a residential property for ₹1,00,00,000 and the indexed cost of acquisition is ₹50,00,000. The long-term capital gain is ₹50,00,000. You purchased a new residential property for ₹60,00,000 within the specified time frame.
- Capital Gains: ₹50,00,000
- Amount Utilized for New Property: ₹50,00,000 (since the purchase amount is more than the capital gains)
- Amount Deposited in CGAS: ₹0 (since the entire capital gains were utilized)
You can claim a deduction of ₹50,00,000 under Section 54, resulting in zero taxable capital gains.
Filing Details in ITR:
- Schedule CG (Capital Gains):
- Enter the details of the property sold.
- Calculate and enter the long-term capital gain.
- Provide details of the new residential property purchased/constructed.
- Enter the amount of deduction claimed under Section 54.
- Schedule CGAS:
- If applicable, provide details of the amount deposited in the Capital Gains Account Scheme.
Summary:
- Section 54 allows tax exemption on long-term capital gains from the sale of a residential property if reinvested in another residential property.
- Eligibility criteria, conditions, and the amount of exemption should be carefully considered.
- The unutilized amount should be deposited in CGAS if not utilized by the due date of filing the return.
- Proper details must be filled in the ITR form to claim the deduction.