Deduction u/s 54 is available where any long term capital asset is sold by the assessee and purchased a new asset being a residential property within 01 year before or two years after the date on which transfer took place or had constructed a residential house within a period of 03 years after the date of transfer. In the present case, as appears, assessee has sold his land and has purchased a residential flat within time with entire sale consideration and therefore, entire capital gain is deductible.
However, as per section 54F(3) where the new asset is transferred by the assessee within a period of 03 years from the date of its purchase or its construction, the amount of capital gain exempted u/s 54F shall be deemed to be the income chargeable to tax as long term capital gain in the year in which such new asset is transferred.
Thus assessee cannot sell the new asset within a period of 03 years from the date of its purchase / construction. However, he can make the gift to his son during this period of 03 years because as per provisions of section 47(iii), section 45 is not applicable to any transfer of a capital asset under gift. However, if the son wants to sell this gifted property, he has to wait till the period of 03 years is completed. In computation of period of 03 years, the period during which father has held the property will also be included
e.g. father had made the gift after 02 years from the date of purchase then the son has to wait for further 01 year to sell the gifted property so that 03 year period would be completed. This can be presumed from the following provisions :-
Section 49(1)(ii) states that where the capital asset became the property of the assessee under a gift, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the asset borne by the previous owner or the assessee as the case may be. Thus cost of acquisition in the hands of previous owner is relevant to determine cost of acquisition in the hands of donee.
Section 2(29AA) defines the term “long term capital asset as a capital asset” which is not a short term capital asset. Section 2(42A defines the term “short term capital asset” as a capital asset held by the assessee for not more than 36 months immediately preceding the date of its transfer. Now it is substituted by 24 months with retrospective effect from 23.07.2024.
Explanation 1(i)(b) to section 2(42A) states that in determining the period for which any capital asset is held by the assessee, where such asset become the property of the assessee in the circumstances mentioned in section 49(1) (which includes gift as well), there shall be included the period for which the asset was held by the previous owner referred to in the said section.
Thus in determining the holding period in the hands of assessee who has received the property by way of gift, the period for which the father had held the asset would be included for determining the period of 03 years. Hence the son can sell the property only after expiry of 03 years which includes the holding period of father and son both.