Section 54F of the Income Tax Act provides exemption from long-term capital gains tax when the sale proceeds of a capital asset (other than a residential property) are invested in a new residential house within a specified time. Today's Ask Wallet Wise query decodes whether a valuation report is required for properties bought before 2001 to claim this exemption.
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My father sold a commercial property for Rs 35 lakh, which he had purchased in 1995 for Rs 50,000. He incurred Rs 50,000 in renovation expenses in 2005. The property was sold in July 2025. We are planning to invest the entire sale proceeds in another residential property worth Rs 45 lakh in order to claim exemption from capital gains tax. Do we need to obtain a valuer’s certificate to determine the fair market value of the land as of 2001?
Expert Advice: Section 54F of the Income Tax Act grants an individual and an HUF exemption from long-term capital gains on the sale or transfer of any capital asset other than a residential house property if the net sale proceeds are invested in buying or constructing a residential house property within the prescribed time period. If the full sale consideration is not invested, the exemption will be available proportionately.
Since you are planning to invest the full sale consideration in a residential house property, you do not have to compute the amount of long-term capital gains. I do not think you need to obtain a valuation report for the value of the commercial property as of April 1, 2001 for computing the long-term capital gains, as the property was acquired prior to that date.
In case the full sale consideration is not invested for acquiring the residential house, you have to compute taxable long-term capital gains. For computing the long-term capital gains, you have to obtain a valuation report to determine the value of the commercial property as of 1st April 2001, which is to be taken as the cost of acquisition. The renovation cost is also required to be added to your deemed cost.
In case you are not able to invest the full money, you can either avail exemption under Section 54EC by investing the long-term capital gains in bonds of specified financial institutions. Since the indexation benefit is practically withdrawn, you will have to invest the net capital gains without indexation in the bonds.
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 decisions.
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