ITR: Section 54F of the Income Tax Act, 1961ITR:

Information About Deduction Claimed Against Capital Gains of Deduction under 54F during ITR filing

Section 54F of the Income Tax Act, 1961

Section 54F provides tax exemption on long-term capital gains (LTCG) arising from the transfer of any long-term capital asset (other than a residential house property) if the gains are reinvested in purchasing or constructing a residential house property. Here are the key details about Section 54F:

Eligibility:

• Eligible Assessee: Individuals and Hindu Undivided Families (HUFs).
• Asset Sold: Any long-term capital asset other than a residential house property.
• Asset Purchased/Constructed: A residential house property.

Conditions:

1. Purchase/Construction:
   • The new residential property must be purchased within 1 year before or 2 years after the date of transfer of the original asset.
   • The new residential property must be constructed within 3 years from the date of transfer of the original asset.
2. Holding Period: The new residential property must be held for at least 3 years from the date of its purchase or construction.
3. Additional Conditions:
   • The assessee should not own more than one residential house property (other than the new property) on the date of transfer of the original asset.
   • The assessee should not purchase any residential house property (other than the new property) within 2 years or construct any residential house property within 3 years from the date of transfer of the original asset.

Amount of Exemption:

• The exemption amount is proportionate to the investment in the new residential property.
• Formula: (Cost of New House / Net Sale Consideration) * Capital Gains
• If the entire net sale consideration is not utilized for the purchase or construction, the proportionate amount will be exempted, and the unutilized amount will be taxed as LTCG.

Capital Gains Account Scheme:

• If the net sale consideration is 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 54F in ITR Filing

Steps to Claim Deduction in ITR:

1. Calculate Capital Gains:
   • Determine the full value of consideration received from the sale of the original asset.
   • Deduct expenses incurred exclusively in connection with such transfer.
   • Subtract the indexed cost of acquisition and indexed cost of improvement (if any).
2. Utilize Net Sale Consideration:
   • Purchase or construct a new residential property within the specified time frame.
   • Deposit the unutilized net sale consideration in CGAS if not utilized by the due date of filing the return.
3. Filing ITR:
   • Select the appropriate ITR form (e.g., ITR-2 for individuals with capital gains).
   • Fill in the details of the original asset sold and the new residential property purchased/constructed under the ‘Capital Gains’ section.
   • Mention the amount of capital gains and the amount claimed as deduction under Section 54F.
   • If the entire net sale consideration is not utilized, mention the amount deposited in CGAS.

Example:

Let’s assume you sold a piece of land for ₹1,00,00,000 and the indexed cost of acquisition is ₹30,00,000. The long-term capital gain is ₹70,00,000. You purchased a new residential property for ₹50,00,000 within the specified time frame.

• Net Sale Consideration: ₹1,00,00,000
• Capital Gains: ₹70,00,000
• Amount Utilized for New Property: ₹50,00,000

The exemption will be calculated as follows:

• Exempted Capital Gain: (₹50,00,000 / ₹1,00,00,000) * ₹70,00,000 = ₹35,00,000
• Taxable Capital Gain: ₹70,00,000 – ₹35,00,000 = ₹35,00,000

You can claim a deduction of ₹35,00,000 under Section 54F, resulting in taxable capital gains of ₹35,00,000.

Filing Details in ITR:

1. Schedule CG (Capital Gains):
   • Enter the details of the asset 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 54F.
2. Schedule CGAS:
   • If applicable, provide details of the amount deposited in the Capital Gains Account Scheme.

Summary:

• Section 54F allows tax exemption on long-term capital gains from the sale of any long-term capital asset (other than a residential house property) if reinvested in a new residential house property.
• Eligibility criteria, conditions, and the amount of exemption should be carefully considered.
• The net sale consideration must be utilized within the specified time frame or 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.