House property capital gains exemption with two new house properties

Published: February 1, 2019 at 1:43 pm

Last Updated on September 15, 2019

The government announced in the interim budget on 1st Feb 2019 that house property capital gains exemption under section 54 of the income tax act can be claimed by the purchase of two new house (residential) properties. Also read: Revised Tax Rebate Under Section 87A (FY 2019-2020) Explained

Existing House property capital gains exemption (section 54)

Section 54 of the income act allows long term capital gains from the sale of a house property to be exempt for individuals and HUF under the following conditions:

  • A residential house (in India) should be purchased one year prior to the sale or two years from the date of sale in the case of a readymade house. If a new house is being constructed, then there is a three year window from the date of sale.
  • The long term capital gain offset is limited to the investment made in the residential property. That is if the gains are two crores and we buy a flat for one crore, the balance one crore is taxable.

House property capital gains exemption with two new house properties

Revised House property capital gains exemption budget 2019

  • Now the long term capital gains from a house property can be rolled over of offset by purchasing two residential houses once in a lifetime
  • The max limit of exemption is Rs. 2 crores. Source: Budget speech (page 22, point no 93)

The finance bill 2019 says  (page 9)

‘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

This means that if the capital gains exceed 2 crores, the option to buy two residential houses is not available.

My understanding from the wording of the finance bill is that the existing option to offset LTCG by buying one residential property is still available any number of times. Only the option to buy two properties can be availed once.

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