54F Tax Rebate

Capital gain from sale of capital assets like property, shares, bonds, gold etc is part of your total income and is taxable. However if the sales proceeds are invested to buy or construct residential property subject to certain conditions, you can claim exemption on long term capital gains (LTCG) tax under section 54F. This exemption is applicable for all capital assets except residential house.

Eligibility for 54F rebate

To qualify under Section 54F, you need to be an individual or HUF and must do one of the following:

- Buy another residential property within 2 years or before 1 year of sale of the old capital asset

- Construct a residential property within 3 years of sale of the old capital asset

This new house should not be sold for a minimum of 3 years (if it is, then capital gains tax benefits get reversed).

If you aren't able to buy/construct residential house by due date of filing Income Tax Returns for that year you can invest  sale proceeds in Capital Gains Account Scheme (CGAS) with authorized banks. You can use the amount for buying/constructing within the stipulated time. Any amount from the original sale proceeds remaining in CGAS will be charged LTCG tax at the end of 3 years.

Also you should not do the following:

- Own 2 or more residential houses while selling the original capital asset, other than the new residential house

- Buy any residential house within 1 year or construct any residential house within 3 years of sale of original capital asset

If you fail to comply with any one of the above requirements LTCG tax will be charged.

Maximum exemption limit under 54F

There is no cap on the extent of tax exemption permitted in section 54F. The entire capital gains can be exempted from income tax if sales proceeds are utilized as explained above.

Fintotal comment

As against section 54 which allows exemption on buying/constructing residential house with just the capital gains amount, section 54F gives complete exemption only if the entire sale amount ('net consideration' in income tax parlance) is utilized. Conditions are also far more stringent to comply with.

In a way section 54F encourages people to buy and keep a house for residence. It discourages buying and selling multiple residential houses.

Here if you purchase more than one house that are adjacent to each other or are in the same building you cannot be denied income tax benefit under section 54F as long as you are buying or constructing them to make them one house.


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