Section 54 and 54F of Income Tax Act,1961 provides for exemption of Long term Capital gain which arises on the transfer  of a Long Term Capital Asset specified in specific sections and on fulfilling certain specified conditions , if the consideration received on transfer of asset is invested in a residential house.

Section 54 deals with exemption in case of a transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house.

Section 54F deals with exemption in case of transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house.

However due to lack of clarifications, there were many conflicting judgements rendered in this regard by various Tribunals.

In the case Smt. Leena J. Shah v. ACIT, 6 SOT 721 (Ahd.) the Tribunal’s view provided that the investment was to be in the residential house located in India U/S 54F. The Tribunal found appropriate that a residential house purchased/constructed must be in India and not outside India.

Whereas in case of Prema P. Shah v. ITO, 100 ITD 60 (Mum.) ,the Tribunal held that if all other conditions laid down in the section were satisfied, merely because the property acquired was located in a foreign country, the exemption claimed would not be denied.”

Thus, the provision is proposed to be amended to clarify that exemption u/s 54 and u/s 54F shall be available in case investment is made in “one residential house situated in India” within the prescribed time limits, emphasizing that the exemption is available with respect to one residential house and that too it must be located in India. The aforesaid amendment is applicable from the AY 2015-16.

Section 54EC provides that the investment made in the long-term specified asset during any financial year shall not exceed fifty lakh rupees. In order to clarify the legislative intent it has been proposed that the investment made by an assessee in the long-term specified asset, out of capital gains arising from transfer of one or more original asset, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees.

This clarification was required because generally it had been observed that, in case of capital gains arising after September were invested in specified assets in a manner that the investment was split into two years thereby claiming a relief of Rs.1 crore instead of Rs 50 lakh.