Section 54F of the Income Tax Act, 1961, provides tax exemption on long-term capital gains (LTCG) from the sale of any capital asset (except residential house property), if the proceeds are reinvested in one residential property.
1. Eligibility Conditions
✅ Asset Sold: Any long-term capital asset (e.g., land, shares, gold, commercial property) except a residential house.
✅ Holding Period: Must be held for >24 months (for immovable property) or >12 months (for listed shares/units).
✅ Reinvestment Conditions:
- Must purchasea residential house 1 year before or 2 years after the sale.
- Must constructa house within 3 years from the sale date.
✅ Ownership Rule: On the date of transfer, the taxpayer must not own more than one residential house (other than the new one).
2. Exemption Calculation
The exemption is proportionate to the amount reinvested:
- Full Exemption: If entire net sale proceedsare invested.
- Partial Exemption: If only part is invested, the balance is taxable.
Example:
- Sale of Land (LTCG): ₹80 lakh
- Net Sale Proceeds: ₹1 crore (after expenses)
- Investment in New House: ₹60 lakh
- Exemption: ₹80L × (₹60L/₹1Cr) = ₹48 lakh exempt(remaining ₹32L taxable).
3. Key Restrictions
✔ One House Limit: Cannot claim exemption if you already own more than one residential house (other than the new one).
✔ Lock-in Period: The new house cannot be sold within 3 years (else exemption is revoked).
✔ Commercial Use: The new property must be residential (not rented out for business).
4. Comparison with Section 54 (Residential Property Sale)
| ASPECT | SECTION 54F (ANY ASSET → HOUSE) | SECTION 54 (HOUSE → HOUSE) |
| Asset Sold | Any asset (except house) | Only residential house |
| Reinvestment | One residential house | One residential house |
| Ownership Rule | Max 1 house (other than new) | No restriction |
| Exemption Formula | Proportional to investment | Full exemption if reinvested |
5. Compliance & Documentation
✔ File ITR-2: Declare exemption under “Capital Gains”.
✔ Proof Required:
- Sale deedof the original asset.
- Purchase/construction agreementof the new house.
- Bank statements(proof of reinvestment).
6. Recent Changes (2024 Budget)
- Digital Proof: Accepted for construction completion (e.g., municipal approvals).
TDS Relaxation: No TDS if reinvestment is declared in ITR.
