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What is Section 54F?
Section 54F of the Income Tax Act allows individuals and HUFs to claim exemption from long-term capital gains (LTCG) if the gains are reinvested in buying or constructing a residential house in India.
It applies only when you sell any long-term asset other than a residential house (like land, gold, commercial property, shares, etc.).
Who Can Claim Section 54F?
- Only Individuals and Hindu Undivided Families (HUFs)
- The asset sold must be a long-term capital asset (held for more than 2 years)
- The asset sold should NOT be a residential house (for that, use Section 54)
Eligible Assets for Section 54F
| Sold Asset Type | Eligible for 54F? |
|---|---|
| Land (residential or commercial) | Yes |
| Gold, Jewellery | Yes |
| Shares (unlisted) | Yes |
| Commercial Building | Yes |
| Residential House | No (use Section 54 instead) |
Conditions to Claim Section 54F Exemption
You must satisfy ALL the below conditions:
1. Buy or Construct a Residential House in India
- Buy within 1 year before or 2 years after the date of sale, OR
- Construct within 3 years from the date of sale
2. Only One House on Date of Sale
- You must not own more than one residential house (excluding the new one) on the date of transfer of the original asset.
3. Full Sale Amount to be Invested
- You must invest the entire net sale consideration (not just the capital gain) in the new house.
- If only part is invested, only proportionate exemption is given.
How to Calculate Exemption Under Section 54F
Formula (if only partial amount is invested):
Exempt Capital Gain =Long-Term Capital Gain × (Amount Invested / Net Sale Consideration)
Example: Full Exemption
- You sell a plot for ₹60 lakh
- Indexed Purchase Price = ₹30 lakh
- Capital Gain = ₹30 lakh
- You invest ₹60 lakh in a new residential house
Full exemption under Section 54F
No capital gain tax
Example: Partial Exemption
- Sale price: ₹60 lakh
- LTCG: ₹30 lakh
- Invested in house: ₹30 lakh
Exempt Gain = ₹30L × (₹30L / ₹60L) = ₹15L
₹15L is tax-free
Remaining ₹15L is taxable
What if You Can’t Invest Before ITR Filing?
Deposit the net sale amount in a Capital Gains Account Scheme (CGAS) before the ITR due date.
- You can withdraw later for property purchase/construction.
- If not used within 2/3 years, the exemption is withdrawn and taxed.
When Exemption Is Cancelled (Reversed)
- If you sell the new house within 3 years
- Or buy another residential house (other than the new one) within 2 years
In these cases, the exempt capital gain becomes taxable in the year of violation.
Important Points to Remember
| Point | Details |
|---|---|
| Allowed for | Individuals & HUFs only |
| Asset sold | Any LTCG asset except residential house |
| New investment | Only in 1 residential house in India |
| Timeline | Buy: 2 years, Construct: 3 years |
| CGAS | Allowed if not invested before return filing |
| ITR Form | Use ITR-2 (if salaried) or ITR-3 (if business income) |
Pro Tip:
Many taxpayers miss claiming 54F or make errors in calculating the proportionate exemption. This can lead to penalties or notices.
Let TaxGiveIndia Help You File Smartly
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- Calculate exact capital gains
- Claim proper exemption under Section 54F
- Avoid costly mistakes and notices
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