Section 54F: Exemption on sale of LTCA

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Hiral Vakil

Capital Gains Exemption
Long Term Capital Asset
section 54F
Last updated on October 12th, 2023

A residential house is a key requirement for individuals. The government of India is continuously working towards achieving the goal of “Housing for All”. The GOI has introduced various schemes for affordable housing. Similarly, various tax exemptions are also introduced to make these goals attainable. Section 54F is one of such exemptions for Long-term capital gain.

Capital Gains investment under Section 54F

An exemption under section 54F is available on the sale of a long-term capital asset except for house property if the taxpayer invests the sale consideration in the purchase or construction of a residential house property.

Eligibility to claim an exemption under Section 54F

In order to claim a capital exemption under section 54F the taxpayer shouldn’t be the owner of more than 1 house property on the date of transfer of the original asset. The taxpayer also should not purchase any other house within 2 years or construct within 3 years after the date of transfer (apart from the new asset for exemption).
The other key considerations to consider are:

Transfer of a plot of land is also eligible for deduction under Section 54F
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Transfer of a plot of land is also eligible for deduction under Section 54F

Quantum of exemption under Section 54F

The amount of Exemption under Section 54F will be available as per the following criteria:

In Budget 2023, Financial Minister has announces that the exemption under section 54F is capped at Rs. 10 crore.
Tip
In Budget 2023, Financial Minister has announces that the exemption under section 54F is capped at Rs. 10 crore.

Example: Akash sold gold in FY 2022-23 for ₹ 16 crore where he has a net long-term capital gain of ₹ 12 crore. He has invested in a new residential house property for a sum of ₹8 crores. Here he can claim an exemption of ₹ 6 crore under Section 54F.

ParticularsAmount (₹ in ‘000)
Net Sale Consideration160,000
LTCG Computed120,000
Cost of New Residential House80,000
Exempt LTCG ( 6*(8/16)Cr.)60,000

Consequences of Transfer of New House Property

If the new asset is transferred before the expiry of 3 years from the date of its purchase or construction then the long-term capital gain exempted earlier under section 54F would be taxable as Capital gains. The capital gain arising from the sell of new residential house property will also be charged under capital gains.

Consequences of purchase/construction of other House Property

If the taxpayer purchases any other residential house within 2 years or constructs within 3 years from the date of transfer of the original asset the long-term capital gain exempted earlier under Section 54F will be chargeable to tax in the previous year in which such residential house is purchased or constructed.

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CGAS Scheme for claiming exemption under Section 54F of the Income Tax Act

Under Section 54F, the taxpayer can take benefit of the CGAS Scheme to claim the exemption. If a taxpayer is unable to utilize the whole or part of the sales consideration for the purchase or construction of a new house property till the due date of submission of ITR, then he/she should deposit the funds in the Capital Gains Deposit Account Scheme (CGAS). The taxpayer can claim an exemption of the amount already spent on construction or purchase of property along with the amount deposited in CGAS.

However, it is important to note that if the taxpayer is unable to utilise the amount deposited in the Capital Gains Account Scheme within the time limit of 3 years, then it shall be taxable as income of the last year.

FAQs

What is Net Consideration u/s 54F?

Net Consideration is the full Sales value/consideration received on the sale of Long Term Capital Assets reduced by any expense incurred in connection with the transfer.
Net Consideration = Sales Value – Transfer Expenses.

Can NRI Claim exemption u/s 54F?

Yes, NRI can claim exemption u/s 54F of the Income Tax Act. Provided the LTCA sold and the house property purchased is situated in India.

Can we claim the exemption u/s 54F, if the House property is in the spouse’s name?

Yes, the exemption can not be solely denied on the ground that new HP is purchased exclusively in the name of their spouse.

Got Questions? Ask Away!

  1. Hi @Deshu84

    You can gift shares to your brother of any amount.
    Your brother can sell those shares and invest the proceeds in a home to take the benefit of section 54F.

  2. This is about 54F - is it for single transaction or all transactions during FY

    Consider there are 3 separate transactions

    1. sell Indian stock in Aug 2023, say sale proceed is x
    2. sell US stock in Sep 2023, say sale proceed is y
    3. sell land in Oct 2023, say sale proceed is z

    All are LTCG

    If I now buy residential property,
    Then should I claim 54F benefit against all events during FY (x+y+z) OR should I claim against one of them (either x or y or z)?

  3. Hey @lokesh_sharma,

    Yes, you can claim the exemption under section 54F against all the Long Term Capital Gains earned by you in a Financial Year. In the case stated by you, exemption can be claimed from the sell on Indian Stocks, US Stocks and Land against purchase of one residential property.

    Hope this helps!

  4. Thanks @CA_Niyati_Mistry
    I meant is it mandatory to claim 54F benefit against all capital gains or I can choose some LTCG (because cost of residential property may be less than sum of all LTCG)?

  5. Hello @lokesh_sharma,

    No, it is not mandatory to claim 54F benefit against all capital gains. The capital gains on which you are not claiming the exemption, you will be liable to pay tax.

    Hope this clarifies!

  6. Hello @CA_Niyati_Mistry /Team,

    Could you please help me with this.

    I have received LTCG on selling my equity shares.I don’t have any residential Property .
    I was planning to construct a new Residential Building and avail 54F exemption benefit.
    My Plan is to construct 4 floors where I want to stay on the first floor and the remaining 3 floors can i give for Rent.

    Is Rental allowed on a new Asset ? Kindly give your suggestion.

    Thanks In Advance.

  7. Hi @ashishmoulya

    Asper the law, to avail of deduction u/s 54F, there should sale of a long-term capital asset except for the house property and you invest the sale consideration in the purchase or construction of a residential house property for a first-time home buyer.

    There is no mention in the Income Tax Act about the property being self-occupied or rented.

    The maximum deduction you can claim is ₹10 crore (FY 2023 onwards).

  8. Hi @Rahul2

    The amount of exemption shall be as follows:
    Cost of new house* (CG/Net consideration)

    In your case, it shall be 60*50/100 = 30L

    So you will pay tax on 60L-30L = 30L.

    Hope this clarifies.

  9. Hi @Deshu84

    You can claim a deduction u/s 54F if you have purchased the property one year before or 2 years after the capital gains.

    So, you cannot claim it now as the time has lapsed.

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