Long Term Capital Gains Deduction u/s 54F is available for Individuals & HUFs for capital gains arising from the transfer of any long-term capital asset, not being a residential house, for the amount invested in a new residential house.
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You have to construct a new residential house within 3 years from the date of transfer, or
You should have purchased a residential house one year before, or
You have to purchase a residential house two years after the date of transfer.
You should not own more than one residential house, other than new asset, on the date of transfer of original asset.
You shall not purchase within a year or construct within three years any residential house, other than new asset after the date of transfer of the asset.
The income from such residential house is chargeable under the head "Income from House Property", other than the one owned at the time of transfer.
Capital Gains are fully exempt, if the cost of the new Residential House is MORE than the net consideration you received for the transfer of the old Long-term capital asset.
If the cost of the new Residential House is LESS than the net consideration, then so much of the capital gain as the whole of the capital gains bears to the net consideration is exempt.
purchase a residential house within two years after the date of transfer, other than the new asset, or
construct a residential house within three years after the date of transfer, other than new asset, or
transfers the new asset within three years from the date of purchase/construction,
then the capital gains already exempt shall be deemed to capital gains in the previous year in which such transfer took place.
Let us continue with an example.
Let's assume, you sold your shares of XXX India Pvt Ltd, for
40,00,000 on 01.01.2012. And the shares were purchased by you on 01.01.2005 for 1,00,000.
Then the Shares become a long term capital asset as the period of holding would be more than 36 months (01.01.2005 to 01.01.2012). And its transfer gives rise to long term capital gains.
In this case of LTCG you have options:
construct a new residential house within 3 years from the date of transfer (i.e.) before 01.01.2015, or
purchased a residential house one year before the date (i.e.) after 01.01.2011, or
purchase a residential house two years after the date of transfer, (i.e.) before 01.01.2014.
Let's now calculate the LTCG on share transfer using the LTCG Calculator ».
Let's consider 31st July 2012 as the due date for filing your Income tax return, and that you have invested in construction of a new residential house 25,00,000/- up to that date.
Now to claim Long Term Capital Gains Deduction for entire LTCG u/s 54F, you should deposit 15,00,000/- (40,00,000 - 25,00,000) in a Capital Gains Deposit Account on or before 31st July, 2012.
If, out of this amount, you utilise only 11,00,000/- for construction of the new residential house by 01.01.2015, the remaining amount of Rs.4,00,000 would be taxed to the extent of
3,83,646/- (38,36,458 x 4,00,000 / 40,00,000) as Capital Gains in the assessment year 2015-16.