The Government of India aims to achieve its “Housing for All” mission. To help with this, it has launched affordable housing schemes and tax exemptions to make buying a home easier. One important benefit is Section 54F, which provides tax relief on long-term capital gains. This encourages people to invest in residential property.
Capital Gains investment under Section 54F
Section 54F offers an exemption on the sale of long-term capital assets, excluding house property. The exemption applies if the taxpayer invests the sale proceeds in buying or constructing a residential house.
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:
- The taxpayer must be an Individual (Including NRI) or HUF.
- The asset sold is a Long-term asset other than a house property.
- The new house property has to be in India.
- There must be the transfer of Long-term capital assets other than a residential house.
Quantum of exemption under Section 54F
The amount of Exemption under Section 54F will be available as per the following criteria:
- If the cost of the new residential house ≥ Net sale consideration of the original asset
– entire capital gain is exempt. - If the cost of the new residential house < Net sale consideration of the original asset
– only proportionate capital gain is exempt
i.e. LTCG* (Amount invested in new residential house/ Net sale consideration)
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.
| Particulars | Amount (₹ in ‘000) |
| Net Sale Consideration | 160,000 |
| LTCG Computed | 120,000 |
| Cost of New Residential House | 80,000 |
| 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.
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
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.
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.
Yes, the exemption can not be solely denied on the ground that new HP is purchased exclusively in the name of their spouse.
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.
This is about 54F - is it for single transaction or all transactions during FY
Consider there are 3 separate transactions
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)?
Hello @Sakshi_Shah1 can you please help with the above 54f query?
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!
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)?
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!
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.
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).
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.
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.