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Benefit of Section 54F in case of sale of shares of a Private Limited Company

June 11, 2017

Benefit of Section 54F in case of sale of shares of a Private Limited Company

Section 54F of the Income Tax act deals with exemption from Capital gains tax arising on transfer of certain capital assets and subsequent investment in a residential house.

 If an assessee has sold a capital asset other than a residential house and it has resulted in a profit (Long Term Capital gains - LTCG) and the assessee has, within a period of one year before or two years after the date on which the transfer took place - purchased, or has within a period of three years after that date-constructed, one residential house in India the profit (LTCG) shall be dealt in line with the below mentioned provisions of section 54F:-

(a)  If the cost of the new residential house is equal/more than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b)  If the cost of the new residential house is less than the net consideration in respect of the original asset, the proportionate amount shall not be charged under section 45:

 

The provisions of this section will only apply if:-

 (i)  The assessee owns not more than one residential house, other than the new asset, on the date of transfer of the original asset or,

 (ii)  The assessee doesn’t purchase any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset or,

(iii)  The assessee doesn’t constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

The income from such residential house, if purchased, other than the one residential house owned on the date of transfer of the original asset, is not chargeable under the head "Income from house property".

Our Comments:- This provision of section-54F is beneficial for the assessee if he has no or one house property on the day of transfer of the original asset. And if he owns more house property then that should not generate rental Income to claim the benefit of this section. Motive behind giving benefit under section 54F is to mobilize funds towards investment in house property which is a basic necessity.

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