Section 54 of ITA, 1961 : Section 54: Profit On Sale Of Property Used For Residence
ITA, 1961
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Explanation using Example
Imagine Mr. Sharma sells his residential house, which he has owned for 10 years, for Rs. 50 lakhs. The capital gain from the sale is Rs. 20 lakhs. He decides to use this money to buy a new residential house to avail tax benefits under Section 54 of the Income-tax Act, 1961.
Scenario 1: Within two years after selling his old house, Mr. Sharma purchases a new house for Rs. 25 lakhs. Since the cost of the new house is greater than the capital gain, Mr. Sharma will not have to pay tax on the capital gain of Rs. 20 lakhs. However, if he sells the new house within three years of purchase, for the purpose of calculating capital gain from this sale, the cost of acquisition of the new house will be considered as nil.
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