Property sale: Is Capital Gain exemption restricted to Rs 10 crore or the cost of a new asset?

financialexpress.com:

Question: The Finance Act 2023 imposed a restriction on the limit of claiming capital gain exemption on the transfer of long-term capital assets to Rs 10 crore under Sections 54 and 54F of the Income Tax Act, 1961 (IT Act). Kindly guide on whether the capital gains exemption in case of a sole proprietor having Long-term capital gains on the sale of commercial property would be restricted to Rs 10 crore or whether such restriction would be made applicable on the cost of the new asset.

Dr Suresh Surana, Founder, RSM India, answers:

Deductions u/s 54 (in case of transfer of residential property) or 54F (in case of transfer of other than residential property i.e. commercial property) can be availed by individuals and HUFs on long-term capital gains by investing proceeds of such gains or sale proceeds, as the case may be, in an Indian residential property. The Finance Act 2023 capped the cost of new residential property at Rs 10 crore while computing the capital gains deduction under Section 54 or 54F.

Consequentially, the limit of Rs 10 crores shall also apply to capital gains or net consideration, as the case may be while making deposits in the Capital Gains Account Scheme. The said restriction will result in maximum capital gain deduction under section 54F being restricted to less than Rs. 10 crores as the section allows capital gain deduction in the same proportion which the cost of the new asset bears to the net consideration.

For instance, if a sole proprietor has derived long-term capital gains of Rs 30 crores from the sale of his commercial property, we need to look at the provisions of section 54F, wherein the computation mechanism for claiming reinvestment benefit is as under:

Please note that the above computation