Can you claim LTCG exemption in different years for the same house constructed by you?

• Section 54F allows LTCG exemption if invested in a house plot
• Plot cost exempt if house built within 3 years
• LTCG exemption can be claimed in different years for same house

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Looking to invest your earnings from stocks and mutual funds to buy a residential plot? Today’s Ask Wallet Wise explains how Section 54F of the Income Tax Act, 1961, applies.

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

I want to sell stocks from my portfolio (around Rs 57 lakhs) and some mutual funds (around Rs 15 lakhs) during this financial year. I am using all the money to buy a residential plot within three months and planning to build a house within two years. What are my tax implications? Can I save myself from LTCG?  In case of a shortfall in constructing a house, can I sell additional mutual fund holdings next financial year and also avail LTCG at that time?  

Expert’s Advice: Section 54F allows an individual and an HUF to claim exemption in respect of long-term capital gains arising on the sale of a capital asset other than a residential house if the net sale consideration is invested for purchasing or constructing a residential house property within the prescribed time period.

For this section, booking an under-construction residential house property is also treated as self-construction. The construction of the house must be completed within three years from the date of sale of the capital asset, resulting in long-term capital gains.

For the purpose of determining the house cost, the cost of the plot is also included; therefore, you will be able to claim exemption under section 54F for buying the residential plot for constructing your own house thereon. Since exemption under section 54F is available in respect of long-term capital gains arising on any capital asset except a residential house, you will be able to claim exemption in respect of long-term capital gains made on the sale of shares and mutual funds from your portfolio for the purchase of a residential plot. Since you are planning to buy a residential plot next year, please ensure you complete the purchase before the due date for filing your ITR. In case you are not able to utilise the amount realised on the sale of these investments for buying the proposed residential plot by the due date, you will have to deposit the money into a bank account to be opened under the Capital Gains Account Scheme by the due date. The money deposited into this account can be utilised to pay for the construction of the house, including the purchase of the residential plot.

There is no restriction under section 54F for claiming exemption under this section for long-term capital gains arising in different years for the same residential house, as long as the construction of the house gets completed within the prescribed period of three years.

So, in addition to the long-term capital gains for the current year, you will be able to claim an exemption for long-term capital gains arising from the sale of your mutual fund holding in future, as long as the same is utilised for the construction of the proposed house and the construction gets completed within three years.