Sections 54 and 54F of the Income Tax Act provide avenues for individuals and Hindu Undivided Families (HUFs) to claim exemptions on Long Term Capital Gains (LTCG) by investing in residential house properties. While both sections aim to encourage investment in real estate, they have distinct features and eligibility criteria. Understanding these differences is crucial for taxpayers planning to avail of these exemptions.
Salient features of Section 54 and Section 54F pertaining to exemption of Long Term Capital Gain (LTCG) through Investment in residential house property
| Particulars | Section 54 | Section 54F |
| Exemption | Exemption on LTCG on sale of residential house property | Exemption on LTCG on sale of capital asset other than residential house property (viz., sale of Equity oriented funds held more than 12 months , sale of gold etc.) |
| Who are Eligible | Individual/HUF | Individual/HUF |
| Time Period for Investment |
|
Same as Sec 54 |
| Investment Amount | To claim full exemption the entire capital gains have to be invested. | To claim full exemption, the entire sale receipts (Sale consideration – expense incurred) have to be invested |
| Capital Gain Deposit Scheme a/c (CGDS) |
If till the date of filing the return of income, the *capital gain* arising on transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the unutilised amount in CGDS a/c in any branch of public sector bank, which is to be utilised within the time period as above. | Same as sec 54 ( Instead of Capital Gain the Net sale proceeds to be transferred to CGDS a/c) |
| Capping (Inserted w.e.f. A.Y. 24-25) | The maximum exemption has been capped at INR 10 crores | Same as Sec 54 |
| Quantum of deduction | Lower of Amount Invested or LTCG | (Capital Gain * Amount Invested/Net Sale Consideration). Deduction can’t be more than amount of LTCG |
| Ownership at the date of transfer |
Ownership of one or more residential properties is not mandatory | The assessee cannot own more than one residential house at the time of sale of the original asset. |
| Restrictions | After claiming exemption there is no restriction on assessee to buy any other house property | If an assessee purchases any other house property within 2 years or constructs within 3 years of transfer of capital asset other than the new house the exemption so claimed is withdrawn. |
| Amendment w.e.f A.Y.21-22 |
|
Exemption can be claimed only in respect of 1(one) residential house property purchased/ constructed in India |
Conclusion: Sections 54 and 54F offer taxpayers opportunities to exempt LTCG by investing in residential properties, but they differ in their scope, eligibility criteria, investment requirements, and restrictions. Taxpayers should carefully evaluate their circumstances and consider consulting with tax professionals to maximize their benefits while complying with the provisions of the Income Tax Act.
Author Bio
SIR, I am buying a flat in bangalore which is under construction and possession expected by 2029. i have been paying the installments when demanded and till date they hv demanded 9 installments which has been paid. i hv not taken any loan. however, i have mutual funds for about 3.5 crores , which i have not redeemed so far and will attract LTCG when redeemed now i hv the following question:
1. can i redeem the Mututal fund on in parts as whne demanded by the builder and can i claim this under the exemption from LTCG liability. i have to pay around 75 lakhs till i gert the possession. so if i want to pay in installments by redeeming my MF units, can i claim relief under the LTCG pl advsie thanks Swaminathan
Request urgent response on Capital Gains
1/ Purchased Property (Plot of Land) in 1980
2/ Sold Property (Land plus 25 % construct) in May 2024 for 3 Cr
3/Indexation Cost of Property (Land plus building) – Rs 1.75 Cr
4/ Therfore Capital Gains 3.0-1.75 =1.25 Cr
5/ I have opened a Cap Gains acct in SBI for 1.30 Cr
I have to reflect this transaction in Tax return by Sep 2025 hence the urgency
Question?
Am I entitled to Full Cap Gains Exemption of 1.25 Cr or Part.
If Part then how much ?
Is this transaction under Sec 54 or 54F
I intend to purchase new property by April 26-
My CA is deducting Tax on Cap Gains and giving Partial exemption _ Is he right ?
Thanks – Regards
Within 2 years we have to invest long term capital gain in a new house. Investment means date of registration of flat in under construction building or the date of OC obtained by the builder.
Regards
Within 2 years we have to invest long term capital gain in a new house. Investment means date of registration of under construction building or the date of OC obtained by the builder. Which date to be considered for under construction projects.
Regards
if partial sale consideration invested in porperty then partial LTCG taxable and can buy bond for partial taxable LTCG
Dear Ram,
Thank you very much for your very informative and insightful article on the key features of section 54F.
I have few questions in this regard and would appreciate if you could clarify/offer some guidance on the below points :-
1. Can NRI’s avail of sec. 54F exemption ?
2. As tax is deducted at source for NRI’s when redeeming mutual funds, can we claim this refund when filing returns and get the exemption under sec 54F if we purchase a residential property and fulfill the conditions for claiming capital gains exemption ?
3. On the Ownership criteria, if the NRI holds 2 residential properties , one of which is co owned along with another family member, can capital gains exemption be claimed under sec 54F and benefit availed ?