How to claim capital gains exemption under Section 54F when buying a new house

Tax exemption rules under Section 54F

If you’re planning to buy a second house and sell equity shares to fund it, Section 54F of the Income Tax Act may help you save tax on long-term capital gains. Here’s how the timing of your property purchase and share sale determines your eligibility.

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I own a single house property as of now. I am planning to buy another ready-to-move-in residential house property during the current financial year. I will use my own funds of Rs 25 lakh, and the rest will be financed through a home loan. I also own some equity shares worth Rs 20 lakh (market value) listed both in India and abroad. I understand that I can use the proceeds from selling these equity shares to purchase a new property and claim an exemption from long-term capital gains tax.

However, I have some doubts regarding the timing of the equity stock sale. Under what conditions can I avail of this benefit? Do I need to sell the equity shares before executing the purchase agreement for the new property? Can I claim the exemption on all equity shares sold during the financial year 2025–26?

Expert Advice: As per the provisions of Section 54F, an individual or a Hindu Undivided Family (HUF) can claim exemption on long-term capital gains arising from the sale or transfer of any capital asset other than a residential house, provided the sale proceeds are used to acquire a residential house property within the prescribed time period.

The prescribed time limit for acquiring a ready-to-move-in house is two years from the date of sale of the asset. Even if a residential property is purchased within one year prior to the sale of the long-term capital asset, the exemption can still be claimed. In case of self-construction or an under-construction property, the construction must be completed within three years from the date of sale of the asset.

This exemption is available only if the taxpayer does not own more than one residential property on the date of sale of the asset(s), other than the new house being acquired.

Coming to your case, you can claim this exemption in respect of shares sold within one year after purchasing the residential house, as well as for shares sold within two years prior to purchasing the house, provided the unutilised amount by the due date of filing your income tax return (ITR) is deposited in a Capital Gains Account Scheme before that date.

Since you currently own only one residential house, you are eligible to claim exemption under Section 54F. As you plan to acquire the new house during this year, you will be able to claim exemption on capital gains from shares sold during the financial year, provided those shares qualify as long-term capital assets.

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