Introduction
When you sell a residential property and reinvest the long-term capital gains (LTCG) in a new home, Section 54 of the Income Tax Act offers a beneficial tax relief. It’s designed to encourage reinvestment in housing and support genuine home ownership.
1. Who Can Claim It?
Section 54 applies exclusively to individuals and Hindu Undivided Families (HUFs). Entities such as companies, firms, or trusts are not eligible.
2. What Assets Qualify?
The asset sold must be a long-term residential house property, owned for over 24 months (or 36 months before amendments). If the asset sold is land without a residential structure, Section 54 does not apply.
3. Reinvestment Requirements
To secure exemption:
– Purchase a new residential property within 1 year before or 2 years after selling the old property.
– Or construct one within 3 years of sale.
If reinvestment is pending, you must deposit capital gains into the Capital Gains Account Scheme (CGAS) to maintain eligibility.
4. Exemption Amount
The exempted amount equals the lower of:
– The capital gain earned; or
– The cost of the new property.
5. Recent Amendments (Finance Act 2023)
From Assessment Year 2024‑25, a ₹10 crore cap applies. Any cost of the new property exceeding ₹10 cr is disregarded for exemption calculations. Where capital gains are up to ₹2 cr, taxpayers may now invest in two residential houses instead of just one.
6. Holding Requirements & Reversal Clause
You must hold the new property for at least 3 years. Selling it earlier leads to a reversal of exemption—the deferred gain becomes taxable.
7. Landmark Case Law Developments
– ITAT Mumbai (April 2025): Husband and wife jointly sold two houses and bought one together. ITAT upheld that joint ownership does not disqualify the exemption.
– Bombay High Court (August 2025): Clarified that prior to the 2014 amendment, buying multiple houses with sale proceeds could still qualify—based on language ambiguity in the law.
Summary Table
| Feature | Details |
| Eligible Assessee | Individuals & HUFs only |
| Asset Sold | Long-term residential property (>24 months) |
| Reinvestment Window | Purchase: –1 yrs / +2 yrs; Construction: +3 yrs |
| Where to Reinvest | Only in India |
| Exemption Basis | Lower of gain or reinvestment |
| Cap | ₹10 cr (post‑FY 2023‑24) |
| Holding Period | 3 years — selling earlier reverses benefit |
| Deposits | Use CGAS if buying isn’t immediate |
| Recent Clarifications | Multiple-property investment & joint ownership validated by rulings |
FAQs
Q: Can NRIs claim this exemption?
A: Yes—NRIs are treated similarly to resident individuals/HUFs and may claim Section 54 benefits under the same conditions.
Q: What if I invest less than my gains?
A: You receive a partial exemption—only on the reinvested portion.
Q: Is land eligible?
A: No—land alone is not eligible unless it’s sold as part of a residential house.
Q: Can I claim for more than one property?
A: Yes—if your gain is ≤₹2 crore, you may invest in two houses (post‑2019 amendment).
Q: What if I don’t reinvest by the deadline?
A: You must deposit the amount in a CGAS account before filing your ITR, to preserve the exemption.
Q: How do recent rulings impact me?
A: They affirm that joint ownership is allowed and pre-2014 multiple-house reinvestment could still claim benefit.
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