Section 54 Tax Benefit proposed to be Extended to Purchase/ Construction of 2 Houses

Section 54 Tax Benefit proposed to be Extended to Purchase/ Construction of 2 Houses (having capital gain of upto Rs. 2 crores)

Finance Minister Sh Piyush Goyal has proposed in Budget 2019 to allow taxpayers with an option to purchase or construct two residential houses in India for Claiming one time tax benefit under section 54, provided the amount of the capital gain does not exceed 2 crore rupees, from FY 2019-20/ AY 2020-21.

The scope of benefit of rollover of capital gains under section 54 of the Income Tax Act will be extended from investment in one residential house to two residential houses for a tax payer having capital gains up to Rs. 2 crore. This benefit can be availed once in a life time, i.e. once the assessee avails this option, he will not be eligible to exercise the option for any subsequent assessment year.

Presently, long-term capital gains arising from sale of residential house property is exempted to the extent such capital gains are invested in purchase/ construction of another residential house property in India, by an Individual or HUF, i.e. Section 54 exemption in current form restricts investment in one residential house only.

In line with Budget 2019 Proposals, the following provisos shall be inserted after section 54(1)(ii) of the Income-tax Act, with effect from the 1st day of April, 2020 (i.e. FY 2019-20/ AY 2020-21):–

‘Provided that where the amount of the capital gain does not exceed two crore rupees, the assessee, may at his option, purchase or construct two residential houses in India, and where such an option has been exercised,–

(a) the provisions of this sub-section shall have effect as if for the words “one residential house in India”, the words “two residential houses in India” had been substituted;

(b) any reference in this sub-section and sub-section (2) to “new asset” shall be construed as a reference to the two residential houses in India:

Provided further that where during any assessment year, the assessee has exercised the option referred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.’.

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