Introduction
Section 54F of the Indian Income Tax Act, 1961 offers a significant tax-saving opportunity. Tailored for individuals and Hindu Undivided Families (HUFs), it allows exemption from long-term capital gains (LTCG) when sold assets (other than residential property) are reinvested into a residential house. This provision strengthens the impetus to invest in housing while reaping tax advantages.
Who Can Claim the Exemption?
Eligible taxpayers include individuals and HUFs. The asset sold must be a long-term capital asset, excluding residential property—examples include land, shares, bonds, or rented buildings. The buyer must reinvest proceeds suitably into a residential house according to specified timelines.
Timeframes and Conditions
1. Purchase Option: The taxpayer must buy a residential property either 1 year before or within 2 years after the sale.
2. Construction Option: Alternatively, they may construct a residential property within 3 years after the sale.
3. Pandemic Update: As per Budget 2023 (effective April 1, 2024), the exemption limit is capped for reinvestment into residential housing exceeding ₹10 crore.
Ownership Restriction
At the time of sale, the taxpayer must not own more than one residential property—other than the newly acquired one. Key clarifications: If co-owning a property jointly (e.g., with spouse), many courts have held that joint ownership doesn’t disqualify exemption. A Delhi High Court ruling also affirmed that purchasing multiple floors in the same building still qualifies as a single house.
How Is the Exemption Calculated?
The exempt portion is proportional, using this formula:
Exempted Capital Gain = LTCG × (Amount Invested in New House / Net Sale Consideration)
If the entire net sale consideration is reinvested, a full exemption applies.
Use of Capital Gains Account Scheme (CGAS)
If reinvestment isn’t completed before filing tax, the taxpayer may deposit proceeds in a CGAS account and still claim exemption. Funds must be used within the allowed timeframe—otherwise, the unused portion becomes taxable.
Key Judicial Interpretations
• Purchase Must Be in Your Name: Courts have held the property must be in taxpayer’s own name.
• Construction Delays & Ownership Nuances: Courts have clarified cases of delayed construction, multi‑storey properties, and joint ownership patterns.
FAQs: Section 54F Made Clear
Q: Who’s eligible under Section 54F?
A: Individuals and HUFs who sell long-term assets (excluding residential property) and reinvest the proceeds in a residential house.
Q: What are the timelines for reinvestment?
A: Purchase: one year before or two years after the sale. Construction: within three years post-sale.
Q: Can I claim full exemption always?
A: Only if you reinvest the entire net sale consideration. If partial, exemption is proportionate.
Q: What about CGAS?
A: You can deposit funds into CGAS temporarily—but they must be used within the time limit, or else become taxable.
Q: How many houses can I own?
A: You must not hold more than one residential house (other than the new one) at the time of sale. Joint ownership may still be allowed depending on facts.
Q: What about buying multiple floors?
A: Multiple floors in the same building are considered one residential property for exemption purposes.
Q: Are there any monetary caps?
A: Yes—from April 1, 2024, investment above ₹10 crore is partially excluded from exemption calculations.
Q: What if someone else buys the property using my money?
A: That does not qualify; the taxpayer must purchase the pr
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