Do let-out, commercial properties qualify for LTCG tax exemption?

Capital gains tax exemption u/s 54 and 54F

Tax-saving on property sale is not limited to self-occupied homes. Today's Ask Wallet Wise query decodes how let-out residential properties and even commercial assets can qualify for capital gains exemption but under different sections and conditions.

Ask Wallet-Wise initiative offers expert advice on matters related to personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try and get a top financial expert to address your queries.

I understand that long-term capital gains (LTCG) earned on the sale of property can be saved by investing in another property. Recently, I read that this benefit is applicable only to residential properties. Please clarify whether the exemption is available only for self-occupied residential properties, or whether it can also be claimed for let-out residential properties as well as commercial properties.

Expert's Advice: Section 54 provides an exemption from long-term capital gains tax to individuals and HUFs arising from the sale of residential properties, whether self-occupied or let out. Therefore, if you are an individual selling a let-out residential property, you can claim exemption under Section 54 by investing the long-term capital gains in another residential house within the prescribed time period.

Long-term capital gains arising from the sale of a commercial property are not eligible for exemption under Section 54 but can be claimed under Section 54F by investing in a residential house. While the conditions for claiming exemption are broadly similar under both sections, Section 54F requires the entire net sale proceeds to be invested in a residential house property, whereas Section 54 requires investment only of the long-term capital gains.

There is no restriction on the number of residential properties one can own on the date of sale for claiming exemption under Section 54. However, exemption under Section 54F is available only if you do not own more than one residential house on the date of sale of the long-term capital asset, other than the new residential house.

If the value of the residential house proposed to be purchased exceeds Rs 10 crore, the exemption will be restricted to Rs 10 crore, and any excess cost will be ignored.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decision.