Who Can Claim Exemption Under Section 54?

Exemption under Section 54 can be claimed by:

• Individual
• Hindu Undivided Family (HUF)

Condition to Claim Section 54 Exemption

Exemption under Section 54 can be claimed if the gain amount is reinvested in buying or constructing a new house property in India. The taxpayer must purchase another house within one year before or two years after the date of transfer of the old house. For construction, the taxpayer must construct another house within three years of the date of transfer.

Can Section 54 Exemption be Claimed for 2 House properties?

Section 54 allows exemption for the investment in one house property, but this exemption can also be claimed for the construction and purchase of two house properties if the long-term capital gain amount is not more than Rs 2 crores. But this option can only be used once in a lifetime.

Exemption Amount Under Section 54?

Individuals and HUFs can claim a maximum exemption of the lowest of the following:

• Amount of long-term capital gains; or
• Rs 10 crores,
• Aggregate of the amount invested in new house property and the amount deposited in the capital gain account scheme.

Capital Gains Account Scheme

In case the individual or HUF has not utilised the capital gains to buy or construct a residential house by the due date for filing their income tax return, they can deposit the amount in a Capital Gains Account to claim the exemption from capital gains. However, the amount deposited in the Capital Gains Account Scheme must be utilised within the specified period for buying or constructing a residential house.

Withdrawing Exemption Claimed Under Section 54

The exemption claimed under section 54 can be withdrawn in the following situations:

• If the deposited amount is not used to buy a house property within 2 years or construct a house property within 3 years from the date of transfer, the unused deposited amount will be considered as long-term capital gains.
• If the new house is transferred before 3 years from the date of purchase or construction, the tax exemption you claimed will be withdrawn and will be deducted from the cost of the new house.