Section 54F - Exemption on Capital Gains from stocks, land, etc

Income Tax Income from Capital Gains
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You might have thought about selling long-term assets such as stocks, land, or jewelry to buy your own home at least once. But what about the potential capital gains tax on the sale of such assets? The good news is that if you reinvest those gains in a residential property, you can benefit from Section 54F of the Income Tax Act. This section offers a tax-saving opportunity for individuals and HUFs, allowing them to claim an exemption on long-term capital gains from the sale of such non-residential assets.

What is Section 54F?

Section 54F allows you to claim a tax exemption when you sell long-term capital assets (LTCA) such as stocks, land, or jewelry and reinvest the proceeds in buying or constructing a new residential property. To qualify for this exemption, you need to meet certain conditions:

  1. The asset you sold must be a long-term capital asset (LTCA) other than a residential house.

  2. On the date of sale, you should not own more than one house property.

  3. You must purchase a new residential house either one year before or two years after selling the LTCA. If you’re constructing the house, it should be completed within three years from the sale.

  4. The new house property should be within India.

Calculating your exemption:

Exemption = (Cost of the new asset) x (Capital Gains) / (Net Consideration)

Maximum Exemption is up to the amount of Capital Gains.

:bulb:In Budget 2023, FM, Nirmala Sitharaman has announced that capital gain tax exemption is capped at Rs 10 crore under section 54F.

Let’s understand better with an example:

Sarah sold a piece of land in FY 2022-23 for Rs. 50,00,000. She had purchased the land in FY 2015-16 for Rs. 30,00,000. Sarah also bought a new residential property for Rs. 40,00,000 in FY 2022-23. Sarah wants to know if she can claim a deduction under Section 54F. The calculation will be as follows:

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Index Cost of Acquisition = Cost Price * Cost of Inflation in the year of transfer / Cost of Inflation in the year when purchased.

Withdrawal of Section 54F?

  • If you sell the new residential property within 3 years of buying or constructing it, the capital gain exemption you received under Section 54F will be added to your taxable income in the year you sell the new property.
  • If you purchase a new residential property (except the one on which exemption is claimed) within 2 years or construct one within 3 years, the capital gain exemption you got under Section 54F will be added to your taxable income in the year you purchase the new property.

What if you don’t reinvest the sale proceeds before filing ITR?

If you can’t reinvest the money from selling your long-term asset in a new property before filing your tax return, you can deposit it into a Capital Gain Account Scheme (CGAS) before filing to claim the Section 54F exemption.

But if you don’t use that deposited money to buy or construct a new house within 3 Years, it will be considered capital gains, and you’ll have to pay tax on the same.

:bulb:54F is allowed in case of LTCA other than residential property. For residential property,
exemption u/s 54 is allowed, and you can read more about it here!

Have doubts? Ask away!

2 Likes
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Dear Sir/Mam,

I need more detail related to tax saving for long term capital gain . Can i gift share having value more than 8 lac to brother and having long term capital gain of more than 5 lac . if so he brother purchase home can we save tax on long term capital gain by section 54 F. Plz share details

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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.

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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)?

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Hello @Sakshi_Shah1 can you please help with the above 54f query?

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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!

1 Like
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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)?

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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!

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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.

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Hi @CA_Niyati_Mistry @Muskan_Balar , this is not entirely clear. It’s okay that whole amount (sales proceeds = initial investment + LTCG) has to be transferred to CGAS account. Whatever amount is left in CGAS after 2/3 years is taxable. But ideally there should be no tax on the investment A which will left unused in CGAS, because I already paid tax on it.
For example, initial investment = 40 lakhs, proceeds = 1 cr. LTCG = 60 lakhs.
Now, we transfer 1 cr to CAGS account. What if new property costs 50 L? CAGS account will have 40L + 10L remaining.

Exemption = 60*50/100 = 30L.

  1. Do we pay tax on 40 L + 10L - 30L = 20L??
  2. or 1 cr - 30L = 70L?
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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).

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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.

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Dear Sir/Mam,

Can we claim tax benefit from long term capital gain to pay existing home loan . I,e
if home loan is taken 8 years back and if today i book profit of 5 Lac . So can i claim for long term capital gain in section 54 F.

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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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Hi Ashish, am not a CA, so please validate the following.
My understanding is - rental is ok in 54F but if 4 floors have separate kitchens, separate entry doors, then tax man can consider these as 4 different houses. If this happens, then you may loose the 54F benefit - there is ambiguity, some cases are available online to read

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Thanks for the info @Shrutika_Shah

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Can you please send online cases if you have handy @lokesh_sharma
Thanks in Advance

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Hello Madam, My friend has sold a long-term share for Rs. 10cr, he purchases a land for Rs. 1cr for construction of residential property and make Construction agreement with construction company the construction may cost Rs. 1cr and advance of Rs. 10Lakhs has been paid for construction company.

  1. Can he claim Rs. 110 lakhs as exemption u/s 54f as he purchased land and paid the advance for construction before 30th sep
  2. or he can claim full value Rs. 2cr as exemption u/s 54F as he made agreement and paid advance. Note: no deposit is made under capital gain scheme.
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Hi @simith

Your friend will be eligible to claim a deduction u/s 54F when he has sold an LTCA (not being a residential property) if he invests the sale proceeds in the purchase or construction of a new residential property in India.
The purchase should be within 1 year before or 2 years after the date of transfer and construction should be completed within 3 years from the date of transfer.
(Also, please note this deduction is available if your friend does not hold more than 1 residential property. Also, he must not purchase any other house within 2 years or construct it within 3 years after the date of transfer.)

If you invest a part of the sale proceeds in the property, the full exemption would not be allowed. In such cases, the exemption would be available on a proportionate basis. The amount of exemption would be calculated as follows

  • Capital gains * amount invested / net consideration

You can claim the amount of exemption that you plan to invest.

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Thankyou Madam,
but my question is wheather the sec 54F can be taken for purchase of land for construction of residential house…