Can staggered equity gains unlock Section 54F exemption for an under-construction property?

LTCG on sale of property

Many taxpayers investing in under-construction homes wonder if long-term capital gains (LTCG) spread across multiple financial years can still qualify for Section 54F exemption. Today's ask Wallet Wise query decodes the eligibility and construction timelines relating to Section 54F.

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I purchased an under-construction property jointly with my daughter in October 2023. We expect to get the possession of the house by March 2026. I do not own any other property. For my share of the property cost, can I claim long-term capital gains (LTCG) exemption on equity shares for payments being made over a period of three years? The LTCG will arise over the following financial years: FY 2023–24; FY 2024–25 and FY 2025–26.

Expert advice: Section 54F provides an exemption to an individual or HUF from tax on long-term capital gains arising from the sale/transfer of any capital asset other than a residential house, provided the assessee invests the net sale proceeds in the purchase or construction of a residential house. For the purchase of a ready-to-move residential house, the exemption is available if the house is bought within two years from the date of sale of the asset or within one year prior to the sale.

If the assessee books an under-construction property or opts for self-construction, the construction must be completed within three years from the date of sale of the capital asset to be eligible for the exemption. The exemption under Section 54F can be claimed across multiple financial years for an under-construction property, as long as the construction is completed within three years from the date of sale of the first capital asset in the series. The commencement date of construction is not relevant for claiming the exemption under Section 54F for investments made in an under-construction property.

This exemption is not available if the assessee owns more than one residential house other than the one being acquired. Since you do not own any residential property in your name, and the construction is expected to be completed within three years from the date of each sale of equity shares, you should be eligible to claim the exemption.

There is no restriction on buying a residential house in joint names, as long as your contribution to the property is equal to or greater than the net aggregate sale proceeds of the capital assets (equity shares, in your case) over the three-year period.

Please note that the exemption under Section 54F is available only up to Rs 10 crore of investment in the residential house. Any excess investment will not be considered for computing the exemption.

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