Maximum Limit of Capital Gain Deduction (NEW CHANGE AS PER UNION BUDGET, 2023)

In this Blog, we will discuss the changes brought by Union Budget in Computation of Capital Gain. As we all know that an Individual/HUF can claim deduction of Re-investment made in Purchase/Construction of Residential Property, from the Capital Gain. This deduction can either be claimed u/s 54 or 54F depending upon the type of Asset transferred (Sold).

Let's first discuss about the PRE-BUDGET Provisions of Section 54 and 54F,

SECTION 54:

Where a person sells a Residential House and reacquires/construct a Residential House, Capital Gain on the former transaction gets exempted.

Some Important conditions attached to this provision are as follows:

1. The benefit is only available to an INDIVIDUAL or HUF.
2. The Asset transferred should be a Long Term Capital Asset (Asset held for more than 24 months) being a Residential House Property.
3. The New Residential House Property should be purchased within a period of 1 year before or 2 years after the Date of Transfer OR New Residential House Property should be constructed within 3 years from the Date of Transfer.
4. Exemption can be claimed with respect to Purchase/Construction of 1 Residential House Property in India. (No Exemption is available for Residential Property purchased/constructed outside India)

But with effect from Assessment Year 2021-22 (i.e, Financial Year 2020-21), for cases where Long Term Capital Gain does not exceed 2 crores, Exemption can be claimed for Purchase or/and Construction of upto 2 Residential Houses. This benefit can be claimed once in a lifetime.

SECTION 54F:

Where a person sells any Long Term Capital Asset (not being a Residential House) and acquires/construct a Residential House, Capital Gain arising will get exempted in the manner provided.

Some Important conditions attached to this provision are as follows:

1. The benefit is only available to an INDIVIDUAL or HUF.
2. The Asset transferred should be a Long Term Capital Asset.
3. The New Residential House Property should be purchased within a period of 1 year before or 2 years after the Date of Transfer OR New Residential House Property should be constructed within 3 years from the Date of Transfer.
4. Exemption can be claimed with respect to Purchase/Construction of 1 Residential House Property in India. 

In case Partial Investment of Sale Proceeds in purchase/construction of Residential House Property, then Deduction will be calculated proportionately.

The Formula to calculate Admissible Deduction u/s 54F is 

AMOUNT INVESTED IN RESIDENTIAL HOUSE PROPERTY  X  CAPITAL GAIN
NET CONSIDERATION ON SALE OF LTCA 

CHANGES MADE IN UNION BUDGET, 2023

As per the recent amendment brought by Union Budget, 2023

THE MAXIMUM AMOUNT OF EXEMPTION THAT CAN BE CLAIMED IN SECTION 54 OR
54 F WILL BE 10 CRORES. (THERE WAS NO SUCH LIMIT EARLIER)


















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