Article explains Circumstances to be fulfilled for availing exemption under section 54F,  What ‘Net Consideration’ means for Section 54F, Non-availability of exemption under section 54F, Amount of exemption available under section 54F, Circumstances under which Section 54F exemption would be withdrawn and Synopsis of the entire provisions of section 54F of the Income Tax Act.

Provisions of section 54F of the Income Tax Act provides exemption towards long term capital gain (other than a residential house) when the amount is invested in purchasing or constructing a new residential house property. The entire provisions of section 54F are explained in the present article.

Circumstances to be fulfilled for availing exemption under section 54F –

The assessee needs to satisfy the following conditions in order to avail exemption under section 54F of the Income Tax Act

1. An exemption under section 54F is available only to an individual or a Hindu Undivided Family (HUF).

2. An exemption is available towards the capital gain arisen on the transfer of any long term capital asset other than a residential house.

3. The ‘net consideration’ arisen on the transfer of long term capital asset is invested in either of the following manners –

a. The amount is invested to purchase one residential house in India. It is compulsory that such investment is made within a period of 1 year before or 2 years after the date of transfer; or

b. The amount is invested, within a period of three years, to construct one residential house in India.

Understanding the term ‘Net Consideration’ –

The assessee is required to re-invest the ‘net consideration’, in order to avail exemption under section 54F of the Income Tax Act. The term ‘net consideration’ is defined under the Explanation to section 54F. Accordingly, net consideration means the full value of the consideration received on account of the transfer of long term capital assets reduced by any expenditure exclusively incurred in connection with the transfer.

Net consideration = Full value of consideration (-) Expenditure

Non-availability of exemption under section 54F –

The exemption under section 54F is not available under the following circumstances –

1. The assessee already owns more than one residential house on the date of transfer of the long term capital assets.

2. The assessee purchases additional residential house (other than the new residential house purchased/ constructed to claim an exemption under section 54F is claimed) within a period of one year from the date of transfer of the long term capital asset.

3. The assessee constructs additional residential house (other than the new residential house purchased/ constructed to claim an exemption under section 54F is claimed) within a period of three years from the date of transfer of the long term capital asset.

In the aforesaid three cases, the amount of capital gains arising from the transfer of the original asset, which was not charged to tax, will be deemed to be the income by way of long term capital gains of the year in which new house is transferred or another residential house (other than the new house) whose income is taxable under the head ” Income From House Property” is purchased or constructed, as the case may be.

It is important that, in the cases above, the income from the residential house (other than the one owned on the date of transfer of the long term capital asset) is chargeable under the head ‘Income from house property’.

Amount of exemption available under section 54F –

Section 54F of the Income Tax Act provides exemption as under –

Particulars Amount of exemption
When full net consideration is invested The full amount of long term capital gain is exempt
When proportionate net consideration is invested Exemption =

Long term capital gain * Amount re-invested / Net consideration

Circumstances under which Section 54F exemption would be withdrawn –

The assessee cannot transfer the newly purchased or constructed residential house for a period of three years from the date of purchase or date of construction, as the case may be.

However, in case the assessee transfers the newly purchased/ constructed residential house, then, the capital gain exempted under section 54F would be taxable as long term capital gain in the previous year in which the residential house is transferred.

Capital Gain Deposit Account Scheme –

The provisions of section 54F allow the assessee to re-invest in any of the following manner –

1. In case of purchasing of the residential house – the assessee can invest one year before or two years after.

2. In the case of constructing a new residential house – the assessee can construct within a period of three years.

However, if the amount is not re-invested within the last date of filing of return of income. Then, the assessee is required to deposit the unutilized amount into the capital gain deposit account scheme. The unutilized amount deposited into the account can be used for purchasing or constructing the residential house within the period of two years or three years.

If the assessee fails to utilize the amount within the specified period of two or three years, then, the unutilized amount would be treated as capital gain on proportionate basis based on exemption claimed earlier as per clause (a) and clause (b) of Section 54F(1) in the previous year in which the period expires.

Synopsis of the entire provisions of section 54F of the Income Tax Act

The gist of the above provisions are summarized hereunder –

Nature of assessee eligible for exemption Individual or HUF
Nature of capital asset transferred Long term capital asset other than the residential house
Nature of re-investment Purchased one residential house within one year before or two years after the date of transfer; or

Constructed one residential house within three years from the date of transfer.

Withdrawal of exemption If the purchased or constructed residential house is transferred before three years.
Capital Gain Deposit Account Scheme If the amount is not re-invested by the last day of filing of the return, then, the balance amount should be deposited in the capital gain deposit account scheme.

Read Also:-

1 Exemption under section 54GB of Income Tax Act 1961
2 Section 54GA Exemption under Income Tax Act, 1961
3 Capital gain exemption under section 54G of Income Tax Act, 1961
4 Section 54F Capital Gain Tax Exemption
5 Section 54EE Tax Exemption on long term capital gain
6 Section 54EC Exemption available on investment in certain specified bonds
7 Section 54D Exemption from capital gain on compulsory acquisition of land or buildings forming part of industrial undertaking
8 Exemption from capital gain on transfer of agricultural land – Section 54B
9 Exemption available under section 54 of Income Tax Act

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20 Comments

  1. Sivaraman says:

    I have earned LTCG for share investing during this year ended 31.03.21. While filling he ITR 2 using the last year form I didn’t found to deduct Rs.1 lac exemption under LTCG. How I can show it. ( I was trying to see the tax liability including STCG

    1. Sivaraman says:

      Sir, I could not see the explained note regarding the exemption of Rs.1 lac earned under LTCG as mentioned in the reply column. I request you to kindly arrange to send me a copy of the same at least in my email id.”[email protected]”.

  2. K. Santhini says:

    Sir. Iam a retired Divisional engineer from BSNL. I received half of a house (ground floor) from my mother in end of 2010.
    Already I have my own house.
    During middle of 2020 I constructed a new house for which land was purchased during March 2020.i retired 29.02.2020
    I invested my retirement benefits in construction of the new house.
    As I and my husband are getting aged we feel hard maintaining the half house which is in other station I sold the property. I don’t want my daughters to get share from half house and maintanance by sharing will be a problem.
    My question is whether can I claim in 54F or any other provision that my new built house expense can be met with the gain I got thro my long term capital of my half house.
    Pl guide me.
    Thank you.

  3. Abhishek Jain says:

    I hv an unconstructed residential land which I purchased in 2010 & this year in april’2021, I want to sell half part of this land to my friend & want to construct my first new house on the remaining part of this unconstructed land .
    In this particular case will I be eligible to get exemption from LTCG under section 54F?
    Please elaborate.

  4. Y p s rawat says:

    Sir can i use our ltcg un listed share in society flat in joint name 50: 50 ltcg 40 lakh total and the flat price 1cr. In section 54f.

  5. Varun Yeturu says:

    As per section 54F, if person A and person B have jointly re-invested their capital gains into one single new property, then during the registration of this property, is it mandatory to register these properties in the names of person A and person B? if not can it be registered under someone else like person C (The situation here is that person C is the son)? if not, can person C be a joint owner. To be a joint owner, should someone atleast make a minimum payment during the purchase of the property or not needed?

  6. Reji says:

    I have brought a residential house last financial year.
    Will I get an capital gain exemption (above 1 Lakh) from the sale of equity ( holding more than one year LTCG) this financial year ? or whether both transaction need to be within one financial year itself?

  7. rakesh kapoor says:

    i have purchasrd land within 6 months but will construct within 2 years but kept money in normal saving account can i avail benifit of long term benifit of tax

  8. Jasbir Chaudhary says:

    If I sold a residential house for Rs. 1.5 Cr and want to distribute in my 3 Sons by purchasing plots or flats and i also want to separate one share for me..

  9. SHIROMANI JAIN says:

    Sir, suppose if i sell a plot in march 2020 for Rs. 30,000,00/- and purchase a another residential plot in june 2020 for Rs. 35,00,000 and then constructed it.
    so can i get exemption u/s 54F for Rs. 30,00,000/- ??

  10. SS RAO says:

    Sir, I wanted to know that I have sold a old Flat in Sept 2019 for Rs 26lacs which was purchased(2004). Re-invested Rs 28 lacs in new flat before IT filing for AY 20-21. I already hold another flat acquired in 2016 with 50% share with my brother and availing relief us 24b for last three years. Can I claim both 54F as LTCG is Zero & claim 24b against another flat for AY 20-21? Please advice which ITR is applicable

  11. Piyush Aggarwal says:

    Pls correct me if I’m wrong. I think here, it is interpreted wrongly about the income from the house property. You have said that

    “It is important that, in the cases above, the income from the residential house (other than the one owned on the date of transfer of the long term capital asset) is chargeable under the head ‘Income from house property’.”

    Whereas the act says

    “Provided that nothing contained in this sub-section shall apply where—

    (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.

    I think it means that as you get income from the new house acquired, the section (exemption) will not apply. Please clarify

  12. PRAVEEN KUMAR K says:

    Hi Sandeep Ji,
    Under S.54F(4), unutilized CGDS amount directly won’t be taxable as CG. It is proportionate amount. Refer proviso to S.54(4).

    Thanks.

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