Can I claim exemption u/s 54 and 54F simultaneously?

When you sell a long-term capital asset you are eligible to claim exemption on the long-term capital gains if you reinvest the sale proceeds into purchasing or constructing a residential property. Section 54 lets you claim exemption when you sell a residential property and use the capital gains to buy or build a new one. Section 54F is similar but applies when you sell long-term assets other than a house property and reinvest the amount into a new house property.

But can you actually claim both these exemptions at the same time? The answer is yes.

Now, let’s take a closer look at a real case to better understand how this works:

ITAT Hyderabad in the case of Venkata Ramana Umareddy V/S Dy. CIT Cir-3 (3), Hyderabad (2013).

Here are some facts of the case in brief,

  • The assessee, an individual, initially reported an income of Rs. 53,60,050 for the assessment year in 2008.
  • Tax authorities later scrutinized their return and found long-term capital gains: ₹49,19,513 from selling land to a developer and ₹44,05,302 from selling a house with land.
  • The taxpayer claimed exemptions under Sections 54 and 54F, investing the gains in a new house worth ₹1,43,26,665 in Hyderabad.
  • Tax authorities disagreed, believing two houses were required for both exemptions, disallowing the Section 54 exemption and adding back ₹44,05,302 to the total income.

Hence, the assessee made an appeal to the Commissioner of Income-tax (Appeals) arguing that Sections 54 and 54F are independent and mutually exclusive. Both sections require investing in a new house, and the law doesn’t restrict claiming exemptions under both for the same property.

However, the CIT(A) rejected the arguments, emphasizing that both sections aim to boost the housing sector and shouldn’t be combined to gain extra benefits by making larger investments in a single property.

Further, the assessee made an appeal to ITAT (Income Tax Appellate Tribunal). The ITAT agreed, stating that these sections are independent, and both provide exemptions for a new residential house. The lower authorities’ interpretation, of requiring two houses, was incorrect. There’s no restriction in the law against claiming exemptions under both sections if the conditions are met, especially when capital gains come from distinct assets.

What can we conclude?

From the above case law, we can clearly interpret that you can claim deductions under Sections 54 and 54F for a single residential property if all conditions are met.

You can read more on sections 54 and 54F here!

Any questions? Ask away!

If I’m buying an apartment which is under construction can I claim exemption under any of these sections for the principal amount paid? For example, if I had paid 50% out of pocket and 50% taken as loan, how does this rule apply?

Also, can it apply retrospectively if purchase was made several years back?

Hey @amitava82,

Exemption under sections 54 and 54F is available on long-term capital gains when you purchase or construct a new house property. Even if you take a home loan to purchase the new property, you can claim the exemption, however, the maximum exemption allowed will be the amount of capital gains.

Moreover, you must purchase a new house property before 1 year or after 2 years from the sale of the long-term asset. In the case of construction of a new house property, the construction must be completed within 3 years. Hence, it cannot be claimed retrospectively if the purchase was made before one year from the sale of the long-term asset.

You can read more to understand the eligibility criteria for claiming an exemption under sections 54 and 54F.

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I purchased a plot of land this year and this year I also have long term gains from sale, to claim the benefit under section 54F is it necessary to start the construction of the house or I can just leave the plot without any construction being done and still claim the benefit u/s 54F.

And to claim the benefit do I have to transfer my capital gains from sale of share to a different capital gain account or invest it in any government bonds before the F.Y. ends or I can just set it off while filing my taxes

Hello @Walker,

Exemption under section 54F can be claimed on long-term capital gains when you purchase or construct a new house property. If you have purchased a plot of land then you need to construct a residential house within the period of 3 years. Also, you need to deposit the amount of gains to claim exemption in the Capital Gain Account Scheme before filing of Income Tax Return.

@CA_Jayni_Bhavsar to claim exemption u/s 54F do I have deposit the capital gains in capital gains account scheme before filing my returns (which would be in July) or before the end of F.Y. (which be in march)

Hey @Walker,

The funds must be invested before the due date for filing the ITR i.e. 31st July.

Hope this helps!