What is Section 54F?

Section 54F allows eligible taxpayers to claim an exemption for the Capital Gains from the sale of a long-term capital asset (other than a residential house property), if they invest that money in purchasing or constructing a new residential house in India within the specified time period.

Who is Eligible for Section 54F Exemption?

The exemption under Section 54F can only be claimed by:

• Individuals
• Hindu Undivided Families (HUFs)

Condition to Claim Section 54F Exemption?

The exemption under Section 54F can only be claimed if:

• The taxpayer buys another house within one year before or two years after selling the old asset, or,
• The taxpayer constructs a new residential property within three years of the date of transfer.

How to Calculate Exemption Under Section 54F?

The exemption under section 54F can be calculated by using the following method:

A x B / C

• A = Investment in the residential house plus the amount deposited in the capital gain
  account scheme. (The total investment cannot be more than Rs 10 crores).
• B = Long-term Capital Gains
• C = Net consideration from the sale of the original asset

Capital Gains Account Scheme

If the taxpayer has not used the capital gains to buy or construct a residential house by the due date for filing their income tax return (ITR), 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 used within the specified period for the purchase or construction of a house property.

Rejection of Exemption Under Section 54F

The exemption under section 54F can be rejected if the taxpayer has more than one residential house on the date of sale of the original asset, except for the one that you may have bought within one year before the date of sale.

When the Exemption Under Section 54F Can Be Withdrawn

The exemption claimed by the taxpayer under section 54F can be withdrawn under the following conditions:

• If the taxpayer buys a residential house, other than a new house, within two years after the date of sale of the original asset or constructs a house (other than the new house), within three years after the date of sale of original asset and the income from such asset must be taxed under the head Income from House Property.
• If the amount deposited in the capital gain account scheme is not used to buy a house within two years after the date of sale or to construct a house within three years of the date of sale, the unused amount becomes taxable.
• If the assessee transfers the new house within 3 years from the date of purchase or construction, the tax exemption you claimed earlier will be withdrawn.