Section 54 LTCG Exemption: Can You Claim It by Buying a Plot?

Section 54 provides exemption from long-term capital gains (LTCG) tax when an individual or Hindu Undivided Family (HUF) sells a residential house property and reinvests the capital gains in another residential house in India.

However, several taxpayers still have confusion about this section 54. One major question is whether an exemption under Section 54 of the Income-tax Act, 1961, can be claimed if a person sells a residential apartment and purchases only a plot of land.

The answer is no, buying just a plot does not qualify for exemption because Section 54 requires investment in a residential house. However, if you sell a house and make a long-term capital gain (LTCG), you can save tax by buying a plot and building a new residential house on it. But the construction must be completed within three years from the date you sold the original house.

If you are not able to use the whole capital gain amount before the due date of filing your Income Tax Return (ITR), then the unused amount should be deposited in a bank account under the Capital Gains Account Scheme. The money kept in this account must then be used to buy or construct the new house within the prescribed time period.

Another confusion of taxpayers is about how many times they can claim exemption on long-term capital gains (LTCG) from the sale of a residential property. The provision allows an individual to claim exemption if the capital gains from selling a residential house are reinvested in another residential house in India.

The once-in-a-lifetime restriction is only applicable if the amount of LTCG does not exceed Rs. 2 crore in two residential houses in India.

However, apart from this specific case, there is no limit on the number of times a person can claim exemption under Section 54, as long as the long-term capital gains are reinvested in another residential property as per the prescribed conditions.