Join our Law Notes WhatsApp Group and stay updated with Legal and Judicial Updates
Section 54 of Income-Tax Act, 1961
Section 54 of Income-Tax Act, 1961 deals with Profit on sale of property used for residence.
From the Act
[(1)] [[Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset [***], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), 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, a residential house, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—
(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.
[(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme30 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
Recent Cases / Related Cases / Case Laws
- Commissioner of Income Tax v Hariprasad Bhojnagarwala, ITR 174 of 1995: Case dealt with Whether, the Appellate Tribunal is right in law and on facts in holding that the benefit of Section 23(2) is available to a Hindu Undivided Family
- CIT v. K. Gangiah Chetty & Sons  214 ITR 548 (Mad.): Firm, whether entitled to exemption - A firm is not entitled to exemption under section 54
- CIT v. M.K. Chandrakanth  125 LNIN 932/258 ITR 14 (Mad.): When the partners used the property prior to the dissolution of the firm for their residence, it must be held that they were owners of the property and they were using the property in their own right for the purpose of residence.
- CIT v. Zaibunnisa Begum  151 ITR 320 (AP): Tax authorities must determine extent of appurtenant land - The expression ‘land appurtenant thereto’ under section 54 has also a secondary meaning as equivalent to ‘usually enjoyed or occupied with’. There is no indication that the Legislature used the above expression in section 54 limiting its sense and meaning artificially to any particle extent. That expression is used in section 54 in a wider sense. It is, therefore, imperative that the tax authorities will have to determine the extent of land appurtenant to a building transferred, taking into consideration a variety of circumstances that may be relevant for the purpose. It is not possible to lay down infallible tests to be applied for the determination of the extent of land appurtenant to a building, as the tests vary depending upon the facts and attendant circumstances of each case.
- CIT v. Smt. M. Kalpagam  227 ITR 733/93 LNIN 283 (Mad.): Where entire extent of land adjoining residence was used as pathways, servant quarters, etc., entire land was to be treated as land appurtenant to building .
- B.B. Sarkar v. CIT  132 ITR 150 (Cal.): Exemption is allowable in full even if house is partly purchased and partly constructed - The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is partly constructed or partly purchased.
- K.C. Kaushik v. P.B. Rane, ITO  84 CTR (Bom.) 62: When more than one house is purchased - In case the assessee has purchased more than one house/flat within the period prescribed in section 54, it is for the assessee to claim relief against the purchase of any one of the house/flat provided the other conditions mentioned in the section are satisfied.
- CIT v. Chandanben Maganlal  245 ITR 182 (Guj.): Exemption is allowable even if a share in new property is purchased - When the Act enables an assessee to get exemption from payment of tax in respect of purchase or construction of a residential house, purchase or construction of a portion of the house should also enable the assessee to claim the exemption. It is possible that a person may not be in a position to purchase the whole residential house at a time and in the circumstances an assessee might purchase a portion of the house or some interest in the house. Thus, where the assessee sold a house and from the sale proceeds purchased 15 per cent undivided share in a house, property from her husband and her son, and she was earlier residing in that house exemption under section 54 can be allowed.
- Section 2 of Income-Tax Act, 1961: Definitions. Includes meanings of various terms used in the Indian Income Tax Act, 1961
- Section 54EC: Capital gain not to be charged on investment in certain bonds
- Section 54F: Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house
- Section 54G: Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area
- Section 54GA: Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any Special Economic Zone
- Section 54H: Extension of time for acquiring new asset or depositing or investing amount of capital gain
Sections of the Indian Income Tax Act, 1961
- Section 1 - 40 of Income-Tax Act, 1961
- Section 41 - 80 of Income-Tax Act, 1961
- Section 81 - 120 of Income-Tax Act, 1961
- Section 121 - 160 of Income-Tax Act, 1961
- Section 161 - 200 of Income-Tax Act, 1961
- Section 201 - 240 of Income-Tax Act, 1961
- Section 241 - 280 of Income-Tax Act, 1961
- Section 281 to end of Income-Tax Act, 1961
- Schedules and Appendix of Income-Tax Act, 1961