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Construct or buy a residential house to get LTCG exemption under Section 54

I sold my residential property in October 2017 and deposited the capital gains amount in State Bank of India. I declared the Capital Gains Accounts Scheme (CGAS) details while filing returns that year. Now, I’m planning to buy a land worth 1 lakh, which is less than the amount in my CGAS amount. Do I still need to construct a house to get income tax exemption?


As you have sold a residential property, to avail tax exemption under Section 54 of the Income-tax Act, the amount of long-term capital gains (LTCG) earned is required to be invested in a new residential house. Land does not constitute a residential house. Accordingly, merely buying land will not fulfil the conditions as mentioned in Section 54 of the Act. Hence, for you to be eligible for claiming the tax exemption under Section 54 of the Act, you would need to also construct a residential house on the said land within three years, after the date of transfer of the erstwhile residential property, assuming all other conditions are satisfied.

I pay monthly rent of 50,000. The rent agreement is in my name. I have informed my employer about this and accordingly they give me income tax benefit on the HRA paid to me with the salary. Please let me know whether I have to deduct any income tax on the payments made to the landlord.

—PM Jain

It is assumed that you are not subject to tax audit and your landlord qualifies as a tax resident of India as per Section 6 of the Income-tax Act, 1961. An individual (not subject to tax audit) is required to deduct taxes at source (TDS) in relation to the rent credited or paid to a resident landlord, only in case where the monthly rental exceeds 50,000. In your case, as the monthly rental is equal to 50,000, the TDS deduction provisions are not currently applicable to you.

However, in future, in case the monthly rental exceeds 50,000, you would be required to deduct taxes at the rate of 5% at the time of credit of rent for the last month of the financial year or the last month of tenancy and carry out related compliances.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at [email protected]

Source: livemint