NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Capital Gains
Caselet: Anita, a resident individual, sold a residential house on 10 August 2024 for a long-term capital gain of Rs 80 lakh. Within one year she bought another residential house for Rs 50 lakh, and she claims exemption under section 54, with the cap on the exempt amount assumed not to bind. The new house is later sold after 2 years. What is her taxable long-term capital gain on the first sale, and how is the cost of the new house treated on its later sale?
Rs 30 lakh is taxable because Rs 50 lakh of the Rs 80 lakh gain is exempt, being the amount reinvested. On a sale of the new house within three years, its cost is reduced by the exempted amount, leaving nil cost.
- ARs 30 lakh taxable; cost of new house is reduced by Rs 50 lakh, giving nil costCorrect
- BRs 80 lakh taxable; cost of new house is Rs 50 lakh
- CRs 30 lakh taxable; cost of new house is Rs 50 lakh
- DRs 50 lakh taxable; cost of new house is Rs 80 lakh
Explanation
Exemption equals the lower of gain (80 lakh) and the amount invested (50 lakh), so Rs 50 lakh is exempt and Rs 30 lakh is taxable. If the new house is sold within 3 years, its cost is reduced by the exempted gain of Rs 50 lakh, giving nil cost and a short-term gain. Since it is sold after 2 years, the cost for computing gain is Rs 50 lakh less Rs 50 lakh, which is nil.
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