Section 54:
Profit on sale of property used for residence.
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(1) 23
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 4
***, 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 5
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 6
constructed, one residential house in India, 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 7
is greater than the cost of 8
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.
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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, and where such an
option has been exercised,––
(a) the provisions of this sub-section shall have effect as if for the words “one residential
house in India”, the words “two residential houses in India” had been substituted;
(b) any reference in this sub-section and sub-section (2) to “new asset” shall be construed as a
reference to the two residential houses in India: Provided further that where during any
assessment year, the assessee has exercised the option referred to in the first proviso, he shall not
be subsequently entitled to exercise the option for the same or any other assessment year.
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(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 scheme 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.
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Notes:
1. Section 54 renumbered as sub-section (1) thereof by Act 19 of 1978, s. 10 (w.e.f. 1-4-1974).
2. Subs. by Act 14 of 1982, s. 11, for certain words (w.e.f. 1-4-1983).
3. Subs. by Act 11 of 1987, s. 19, for “Where, in the case of an assessee being an individual” (w.e.f. 1-4-1988).
4. The words and figures “to which the provisions of section 53 are not applicable” omitted by Act 32 of 1985, s. 14
(w.e.f. 1-4-1985).
5. Subs. by Act 23 of 1986, s. 11, for “one year before or after the date on which the transfer took place purchased”
(w.e.f. 1-4-1987).
6. Subs. by Act 25 of 2014, s. 22, for “constructed, a residential house” (w.e.f. 1-4-2015).
7. Subs. by Act 19 of 1978, s. 10, for “is greater than the cost of the new asset” (w.e.f. 1-4-1974).
8. Subs. by Act 14 of 1982, s. 11, for “the house property” (w.e.f. 1-4-1983).
9. Ins. by Act 7 of 2019, s. 6 (w.e.f. 1-4-2020).
10. The Explanation omitted by Act 11 of 1987, s. 19 (w.e.f. 1-4-1988).
11. Subs. by s. 19, ibid., for sub-section (2) (w.e.f. 1-4-1988).
12. The Explanation omitted by Act 18 of 1992, s. 27 (w.e.f. 1-4-1993).