Taxpayers can claim exemption under Section 54 by investing in an under-construction residential property. According to reports from Livemint, the law allows a period of up to three years from the date of sale of the original asset for completion of construction. Many taxpayers use under-construction projects as a tax-saving avenue while acquiring a new home, as the exemption is available even when the property is still being built.
Section 54 provides relief from long-term capital gains tax arising from the sale of a residential house property. As reported by Livemint, to claim the exemption, the taxpayer must reinvest the capital gains in another residential house. The deduction is available only on long-term capital gains and the maximum exemption that can be claimed is capped at ₹10 crore. The amount exempt is restricted to the lower of the long-term capital gain or the amount invested in purchasing or constructing the new residential house.
Section 54F offers capital gains exemption on sale of any asset, other than residential house property. According to Mint, this provision allows exemption on shares, mutual funds, gold, commercial buildings, and other long-term capital assets. The key requirement is that the asset must be held for more than 24 months before selling, with the exemption available only on long-term capital gains. Unlike other sections, Section 54F exempts only the amount reinvested in proportion to the sale consideration, making it suitable for taxpayers with substantial gains from non-residential assets.
The benefit of Section 54 is available only to individuals and Hindu Undivided Families (HUFs). According to Livemint, to qualify, the asset being sold must be a long-term capital asset held for more than 24 months, and the property sold should be a residential house whose income is taxable under the head "Income from House Property." The exemption is subject to an overall ceiling of ₹10 crore, and if capital gains do not exceed ₹2 crore, the taxpayer has a one-time option during their lifetime to invest in two residential houses and claim exemption. Section 54F extends eligibility to non-residents as well, providing comprehensive coverage for various asset categories.
The new residential property must be purchased within one year before or two years after the sale of the original asset, or constructed within three years from the date of transfer. As reported by Livemint, the taxpayer must purchase a residential property within the specified timeframe to qualify for the exemption. The new residential property must be situated in India, with investment in overseas residential property not qualifying for the exemption. Partial reinvestment is allowed - if the new property costs less than the sale proceeds, the exemption is available only for the reinvested amount, with taxpayers needing to pay capital gains tax on the remaining amount. Section 54F imposes additional restrictions - taxpayers cannot own more than one residential house on the sale date, cannot purchase another house within two years, and cannot construct one within three years of the sale.
