Exemption under Section 54 and Section 54F

There is always a doubt and confusion in the industry among professionals as well as tax payers regarding availment of exemption under section 54 and 54F against capital gains. Whether investment is allowed to be made only in one residential property or more than one residential property can be allowed? Therefore, today I am covering here this topic so that it will help everyone to make wise decision at the time of calculation of tax liabilities.

Provision under section 54 regarding investment in residential property:

1. The exemption under section 54 against the capital gains only if the assessee invested in purchase or construction of 1 residential house. This is irrespective of number of house already held by the assessee. This clause has been introduced by Finance Act, 2014 in this section. Hence investment in single residential property will allowed exemption to assessee
2. Further, a very unique clause is introduced by Financed Act, 2019, which is an exemption to the above clause. In cases where amount of capital gains does not exceed Rs 2 crore, in such cases the assessee has an option that even if he invests in 2 residential properties then also he will be able to take exemption of both the houses against the capital gains. But remember, this exemption can be claimed only once in lifetime, once it is claimed It should not be claimed again.

Provision under section 54F regarding investment in residential property:

1. The exemption under section 54 against the capital gains only if the assessee invested in purchase or construction of 1 residential house. This clause has been introduced by Finance Act, 2014 in this section. Hence investment in single residential property will allowed exemption to assessee.
2. But in section 54F, there is a restriction on number of residential properties held by the assessee. This means the assessee does not own more than 1 residential property on the date of transfer exclusive of the one which he has bought as investment to claim exemption under section 54F
3. Further, please note that the once in lifetime option of investment in 2 residential house properties which is there in Section 54 is not there in Section 54F

I hope the above clarification will help you to clear your confusion regarding these sections.

Republished with Amendments