Section 54 + 54F
Property LTCG Exemption

BOTH allow LTCG TAX EXEMPTION when you buy a new residential house using sale proceeds, BUT differ in WHAT YOU SOLD: SECTION 54: Apply if you SOLD A RESIDENTIAL HOUSE PROPERTY (selling old home → buying new home). KEY POINTS: (1) Exemption based on LTCG amount itself. (2) Multi-house ownership OK — can have several homes already. (3) Most common — used when upgrading home. SECTION 54F: Apply if you SOLD ANY OTHER LONG-TERM CAPITAL ASSET (shares held > 1 year, land, gold, jewelry, MFs, etc.) AND buying a residential house. KEY POINTS: (1) Exemption based on PROPORTIONATE share of FULL SALE CONSIDERATION. (2) STRICT: cannot own more than 1 residential house at time of sale. (3) Less generous than 54 — but only option if selling non-house asset. EXAMPLE 1 (Section 54): Sold old flat ₹2 crore (LTCG ₹80L). Bought new flat ₹2.5 crore. EXEMPTION = ₹80L (full LTCG). EXAMPLE 2 (Section 54F): Sold shares ₹3 crore (LTCG ₹2 crore). Bought new flat ₹2 crore (₹1 crore from own funds, rest from proceeds). EXEMPTION = ₹2 crore × (₹2 crore / ₹3 crore) = ₹1.33 crore (proportionate). Less generous.

BUDGET 2023 INTRODUCED ₹10 CRORE CAP on Sections 54 + 54F exemption. EFFECTIVE FY 2023-24 onwards. PURPOSE: government wanted to limit ultra-wealthy from claiming massive exemptions on luxury home purchases. KEY POINTS: (1) Maximum exemption per Section 54 or 54F: ₹10 crore. (2) Excess LTCG above ₹10cr exemption — TAXABLE at 12.5% LTCG rate. (3) Combined across both sections — cannot claim ₹10cr in 54 + ₹10cr in 54F. (4) Cap is on EXEMPTION amount (not house cost). EXAMPLE: Sold mansion ₹15 crore (LTCG ₹12 crore). Bought new ₹15 crore mansion. PRE-2023: ₹12 crore fully exempt. POST-2023: ₹10 crore exempt + ₹2 crore taxable at 12.5% = ₹25 lakh tax. WHO AFFECTED: ultra-HNW individuals selling Mumbai/Delhi luxury homes. Typical middle-class home sales (LTCG < ₹2 crore) UNAFFECTED. STRATEGIC: If selling property generating > ₹10cr LTCG, plan partial Section 54EC (₹50L cap, REC/NHAI bonds) + Section 54 (₹10cr cap) combination.

TIME LIMIT for reinvestment: TO BUY existing property: 2 YEARS from date of original asset sale. To purchase new flat in resale market, ready/under-construction project, or directly from owner. TO CONSTRUCT new house: 3 YEARS from date of original asset sale. Building plot you already own, or buying plot + constructing within 3 years. MEASURE FROM: actual DATE OF TRANSFER (sale deed date typically). NOT date of agreement. ALSO COVERED — BEFORE SALE: Up to 1 YEAR BEFORE original sale, if you bought a residential house, it qualifies. So total window: 1 year before sale + 2 years after = 3 year window for purchase. (Construction stays 3 years post-sale.) WHAT IF YOU CAN'T BUY/CONSTRUCT WITHIN DEADLINE? Use CGAS (Capital Gains Accounts Scheme) — see next Q. UNDER-CONSTRUCTION PROJECTS: tricky — possession + registration must happen within 3 years for construction option. Builder delays a real risk. CRITICAL: Maintain documentation — sale deed dates, purchase agreement dates, possession certificates. ITR + scrutiny may require evidence.

CGAS — Capital Gains Accounts Scheme. Mandatory deposit scheme if you DON'T plan to reinvest LTCG within stated time periods OR before ITR due date for the year of sale. KEY POINTS: (1) PURPOSE: Government way of ensuring you don't claim exemption without actually intending to reinvest. (2) DEPOSIT BEFORE: ITR due date for FY of sale (July 31 typically for individuals). Pre-emptively park unused exempt amount. (3) WHERE: Authorized banks (SBI, BoB, Canara, designated). Open CGAS account specifically. Cannot deposit in regular savings/FD. (4) ACCOUNT TYPES: (a) Account A — savings type, withdraw for buying property. (b) Account B — FD type, longer reinvestment plan. (5) WITHDRAWAL: Only for purchase/construction of residential house under Sec 54/54F. Bank verifies usage. (6) IF UNUSED BY DEADLINE: 2-year (or 3 for construction) deadline — unused balance becomes TAXABLE LTCG in year deadline expires. WHO USES CGAS: People who sold but haven't finalized purchase property yet by ITR due date. Bridge for time period to actual reinvestment. RECOMMENDATION: If you sold in FY 2025-26, file ITR by July 2026 either reinvesting OR depositing unused amount in CGAS. Without CGAS deposit, can't claim Section 54/54F.

SECTION 54F STRICT RULE: At TIME OF ORIGINAL ASSET SALE, you must NOT own MORE THAN ONE residential house property (excluding the new house you're buying for exemption). EXAMPLES: (1) ALLOWED: You own 1 home + sell shares + buy 2nd home → 54F EXEMPTION OK. (2) ALLOWED: You own 0 home + sell shares + buy 1st home → 54F EXEMPTION OK. (3) NOT ALLOWED: You own 2 homes + sell shares + buy 3rd home → NO 54F exemption (you owned > 1 at sale). (4) NOT ALLOWED: Within 1 year of original sale, you bought another residential property apart from your 54F purchase. Disqualification. RATIONALE: Government doesn't want wealthy investors using shares/gold gains to keep building house portfolio repeatedly. SECTION 54 DIFFERENT: NO multi-property restriction. You can own 10 homes + sell 1 + buy 11th — Section 54 applies. Reason: Section 54 is replacing house with house (lateral move), Section 54F is converting other wealth into real estate (one-time benefit per cycle). STRATEGIC: If you have multiple properties + selling significant non-property asset, consult CA before using 54F. May need to sell one property first to be eligible.

JOINT OWNERSHIP scenarios: SECTION 54 + JOINT OLD HOUSE: When jointly-owned house sold, each co-owner can claim Sec 54 on their proportionate share independently. EXAMPLE: Husband + wife jointly own old flat 50:50. Sold ₹2cr (each gets ₹1cr). LTCG each ₹40L. Each separately buys new flat ₹50L. Each claims Sec 54 on ₹40L → ZERO LTCG tax for both. WORKS WELL. SECTION 54F + JOINT NEW HOUSE: New flat purchased jointly by spouses. Capital gain reinvested by ONE spouse (typically primary funder). That spouse claims 54F based on their share. Other spouse: just joint owner, no specific tax benefit. MULTIPLE NEW HOMES: ONE TIME EXEMPTION OK for purchase of TWO houses if combined LTCG ≤ ₹2 crore (Budget 2019). Beyond ₹2cr, only one house allowed. ONE-TIME LIFETIME: this 2-house option can be used ONLY ONCE in entire lifetime. CGAS WITH JOINT: each co-owner with proportionate gain can open separate CGAS accounts. Maintain documentation. STRATEGIC: Joint ownership doubles deduction caps + enables 2 separate Sec 54 claims. Critical to document ownership ratios clearly in sale + purchase deeds.

SECTION 54/54F vs SECTION 54EC differ in REINVESTMENT vehicle: SEC 54: Sale of HOUSE → BUY HOUSE (lateral move). No cap on exemption (within ₹10cr cap). SEC 54F: Sale of NON-HOUSE asset → BUY HOUSE. Proportionate calculation. Multi-property restriction. SEC 54EC: Sale of ANY LONG-TERM CAPITAL ASSET (including house) → INVEST in REC / NHAI / PFC / IRFC notified bonds. (1) MAX ₹50 LAKH per FY (across both you + spouse separately). (2) 5-year lock-in on bonds. (3) Bond yield ~5.25% (taxable). (4) Bonds redeemable at face value after 5 yr. (5) NOT for buying property — pure investment route. COMPARISON FOR ₹1.5 CRORE LTCG: (a) Sec 54: Buy ₹1.5cr+ home → full ₹1.5cr exempt. (b) Sec 54EC: Invest ₹50L in REC/NHAI bonds → ₹50L exempt. ₹1 crore taxable at 12.5% = ₹12.5L. STRATEGIC: Combine BOTH: ₹50L 54EC bonds (cash-friendly, no property hassle) + ₹1cr 54F house purchase (bigger exemption, but takes effort + creates illiquid asset). WHO USES 54EC: those who don't want another property + simpler tax saving. ₹50L cap limits its use for very large gains.

DOCUMENTATION FOR Section 54/54F claim: (1) ORIGINAL SALE DEED — old asset (property/shares/gold). (2) NEW PURCHASE DEED — for new residential property OR CGAS deposit slip. (3) BANK STATEMENT showing capital gains money flow. (4) FAIR MARKET VALUE certificate (CA-issued) if any indexation needed. (5) STAMP DUTY + REGISTRATION receipts of new house. (6) POSSESSION CERTIFICATE for under-construction projects. ITR FILING WORKFLOW: (1) Schedule CG (Capital Gains): declare original asset sale + LTCG calculation. (2) Exemption claim: Section 54 (House to house) or 54F (Asset to house) — show new house cost + claim exemption. (3) CGAS deposits to be declared as Schedule CG addition. (4) Form 26AS check for TDS on property sale (1% if seller is Indian resident, 20%+ if NRI). (5) AIS data sync for verification. AUDIT TRAIL: keep all documents for 8 years (assessment window). IT Department + frequent scrutiny on large property transactions. CONSULT CA: any LTCG > ₹50 lakh - mandatory professional advice. Property tax compliance is complex (stamp duty + ITR + GST + RERA) — DIY risk is high.