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2 years or constructs within 3 years of transfer of capital asset other than the new house the exemption so claimed is withdrawn.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.
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