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Budget 2023 Limits RollOver Benefits under Section 54 and 54F - Provide maximum ceiling of deduction

In recent years, high-net-worth individuals have been taking advantage of the roll over benefits offered by Section 54 and 54F of the Income-tax Act of 1961. These provisions allow for deductions on long-term capital gains from the transfer of a residential property, provided that the capital gain is reinvested in a new residential property within a certain time frame.


However, the large scale exploitation of these provisions by high-net-worth individuals has prompted the government to impose a limit on the maximum deduction that can be claimed under these sections. In the recent Budget 2023, it was proposed that the maximum deduction that can be claimed by the assessee be limited to rupees ten crore.


This means that if the cost of the new residential property exceeds rupees ten crore, the cost will be deemed to be ten crores, limiting the deduction under the two sections to ten crore rupees. This move aims to prevent the abuse of these provisions and to keep their purpose in line with mitigating the shortage of housing and encouraging house building activity.


These amendments will take effect from April 1, 2024, and will apply to assessment year 2024-25 and subsequent assessment years. Real estate investors and high-net-worth individuals should keep this new rule in mind while making investment decisions.


In conclusion, the recent changes to Section 54 and 54F of the Income-tax Act aim to prevent the abuse of these provisions and keep them in line with their intended purpose. This move will have an impact on real estate investments and high-net-worth individuals should plan accordingly.

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