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

Income Tax Income from Capital Gains
41

Hi, I bought an under construction house that’ll be delivered in 3.5 yrs around may, 2027. I actually intend to sell this before possession.

Now, I’ll be recieving an LTCG of 30L this month. If I invest the entire net sale value into a ready to move in 2nd house, would I be eligible to claim the tax under section section 54F, given I won’t be receiving possession of my first house in the coming 3 years?

42

Hello @niru.niranjan.y

As per Section 54F, you can purchase a residential house property against LTCG provided you do not own more than 1 house property at that time and you cannot construct any other property within 3 years after the date of transfer.

Thus earlier the condition was of 1 house which has been amended to 2 house properties. Thus, you can claim the deduction of Section 54F even if you own 1 property apart from the new one.

Hope, this helps.

43

I’m considering buying an under-construction property in Bangalore, valued at 70 lakhs. Construction is expected to take 4 years, starting December 2023 and ending December 2027. I have a matured fixed deposit (FD) of 7 lakhs (deposited at 2018) and jewellery worth 8 lakhs that I’d like to use towards the purchase.

My questions are:

  1. Tax implications for FD and gold: Can I claim exemption under Section 54F for both?
  2. Claiming 54F in stages: Some online forums suggest that 54F can only be used once per assessment year. For example, if I sell gold in December 2023 and again in November 2024 for my under-construction property instalments, can I still claim the exemption for the second sale?
  3. Construction duration: Does the 4-year construction period impact claiming 54F? I’ve seen information suggesting a 3-year limit for under-construction properties.
  4. Tax exemption for prepayment: I plan to take a home loan for the remaining amount. If I redeem my mutual funds (invested around 2019) to prepay the loan around 2030, will I still be eligible for LTCG tax exemption?

Please provide clarification on these points.

44

Hey @rahulrgk,

With regard to your query,

  1. You will be able to claim 54F on Gold and not FD as gold is considered a capital asset while a FD is not.

  2. If the assets are sold in the same FY and the gains are reinvested towards buying/constructing a house property, 54F can be claimed on all of those.

  3. Yes, there is a time limit of 3 years within which the construction must be completed. In case the construction takes more than that, the exemption will be withdrawn.

  4. No, the exemption is not allowed on repayment of home loans.

Hope this helps!

45

Hi,
I would like to know in which field of ITR form it is required to show the mutual fund long term capital gains that is used to purchase own house in the same assessment year so as not to pay tax. Also, is there an option to avoid tax on short term capital gains on mutual fund / shares?

46

Hey @SANDIP_BHATTACHARYA,

ITR-2 needs to be filed in case of capital gains. You will first need to report the mutual fund transactions under schedule 112A. The capital gains will then be auto-populated under schedule CG. Then in schedule CG, you need to report the purchase of house property u/s 54F.

Hope this helps!

47

Hi, I have purchased under construction residential apartment in FY23-24 and this is my first property purchase. I have made agreement and already paid 50 Lakh amount to builder in current FY. I will be getting possession in next FY (24-25) and registration will also happen in next FY (24-25).
I have sold shares and mutual fund worth 40 Lakh all with LTCG in current FY.
As far as I have read about section 54F, I should be getting exempt of all LTCG under section 54F.
Can you please confirm the above statement and if yes then
(i) I will get exempt in current FY and not have to pay tax. Also tell what documents are needed while filing ITR
or
(ii) I need to pay tax in current FY and will get refund in next FY.

Please help me.

48

Hey @mrmeetspatel,

Yes, you can claim an exemption u/s 54F.

Your LTCG will be exempt for this FY and you do not need to pay any tax on the same. If you will not be using the sale proceeds this FY, you can deposit the same in CAGS and claim the exemption.

49

Hi,

I have some LTCG gain (example of 30 lakhs and net sale value is 1.5 crores) from foreign RSU shares sold between April 2023 till Jan 2024, I am planning to buy a flat which is under prelaunch and supposed to give possession in December 2027 .Can 54f section allow exemption if I pay complete amount in 2 years to builder though possession would be after 4 years from agreement date which is Feb 24.

Please help as no information is available whether 54f exemption time line of 2 years is applicable from booking date or completeuon of flat which is not in my control .

Thanks for help

50

Hey @yrsandy,

The new property must be transferred within 2 years to claim an exemption u/s 54f. In the case mentioned by you, the 54f exemption will not be allowed as you will get possession in 2027.

51

Thanks alot. It means we cannot invest LTCG in any flat whose possession is >3 years from sale of shares.?

May be builder can change the date of possession in agreement to fulfil this criterion ? What all documents would be required for availing 54f in ITR 3 and whether stamp duty and GSt would be covered in 54f execption

52

Hi, seeking clarification on 54F…

  1. What all expenses can be claimed towards ‘Cost of the new Asset’ while calculating the exemption under 54F…

    Legitimate expenses involved in acquiring residential property (Cost of the new asset) are:

    a) Amount paid to the Seller
    b) Stamp duty and registration paid to the State Govt treasury
    c) Khatha Transfer paid to Mahanagar Palike
    d) Electricity meter transfer paid to State owned Co
    e) Society membership transfer

In addition…
f) Brokerage Commission paid to individual (Invoiced and paid through Banking Channel)
g) Interiors (The house is bare shell, expenses incurred to make it live able). Is there any restriction on how much (% of property cost / value) one can claim?

Seeking clarity on all the above more specifically on Brokerage and Interiors to
avoid any ‘disallowance’ during assessment later?

  1. Once the residential property is acquired (important to note cost of the new residential property is less than the Capital Gains) can we close the Capital Gains Account by paying taxes on the balance amount after calculating exemption amount as mentioned above? Is this done in the same financial year in which the residential property is acquired through funds invested under 54F? Or do we need to stay invested in CAGS A/c for 3 Year period since the date of Sale of stocks?

  2. Since the deal is consumated, do we still need an approval from AO for closing the CAGS account?

Thank You!

53

Hello @3066

  1. Any expense incurred for the purchase of the House property will be included in the Cost of the purchase of the new asset. Hence, Brokerage will be allowed. However, the interior cost will not be allowed as a purchase cost.
  2. Yes, you can withdraw and close the CGAS account by paying taxes on unutilised funds in the same financial year in which the new asset is acquired.
  3. Approval of AO is not required for closing the CGAS account.

Hope this helps!

54

Hi Mam ,

Is someone eligible to claim exemption in 54F section if the proceeds of mutual fund redemption are used towards paying stamp duty and registration charges of a resale property.

55

Hey @Anoy_Panakal,

If you have sold LTCA and purchased a house property within 2 years or before 1 year of the sale, the capital gains will be exempted. The purchase cost of the new house property includes stamp duty charges and registration charges.

Hope this clarifies.

56

Thank you Shreya for your advice. Appreciate it!

57

Hi Surbhi,

Thanks for this - this is very helpful. Some small questions & doubts based on this -

  1. What is the proof of purchase that is considered for LTCG exemption - Date of Sale of Agreement / Date of Registration / Date of Actual Possession?

In my case, these 3 dates will vary over the course of 3 years -

  • Sale of Agreement - Feb '24
  • Registration - Jun '26 (Tentative)
  • Possession - Dec '26 (Tentative)

I have Shares which will become eligible for LTCG on a rolling basis from this year onwards - say 40L in Feb '24 this year, another 20L next year & so on.

Based on this, will I be able to claim LTCG exemption of shares sold in Feb’24 or not?

Thanks in advance :slight_smile:

58

Hey @Mrinal,

As per the Income Tax Act, the date of registration is considered as the date of purchase and the same should be entered while claiming the 54F exemption.

However, as per some case laws, the date of the sale agreement was also allowed for claiming the 54F exemption.

Hope this helps!

59

Hey @yrsandy,

Here’s a clarification on your previous query, as per the Income Tax Act, the date of registration is considered as the date of purchase and the same should be entered while claiming the 54F exemption.

However, as per some case laws, the date of the sale agreement was also allowed for claiming the 54F exemption.

Moreover, yes the stamp duty and GST charges will be included in the cost of acquisition of property and would be covered in the 54F exemption.

Hope this helps!

60

Hello Experts,

I am considering availing the exemption under Section 54F this year. Here is my case.

  1. I have purchased a flat on my name in FY2013-14
  2. I have purchased another flat jointly with my wife in FY2022-23
  3. I have made LTCG by selling funds/shares this FY2023-24

Can I avail exemption of the gains/proceeds made in point 3 in towards point 2 above?

Thanks in advance.