Investing plot sale proceeds in an under-construction property? Here’s how Section 54F works for LTCG exemption

Buy house

• Section 54F exemption needs property completion within 3 years of asset sale
• Booking date or payments are not relevant for exemption eligibility
• Exemption denied if completion exceeds 3 years at sale time

Did our AI summary help?

Today’s Ask Wallet-Wise explains how Section 54 applies to claim LTCG exemption on proceeds used for buying an under-construction property.

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 to get a top financial expert to address.

I intend to sell a residential plot in January 2026. Will I be eligible for a long-term capital gains exemption if I invest the entire sale proceeds in an under-construction property allotted to me on August 16, 2025? The builder has promised possession in August 2030.

Expert’s advice: Under Section 54F, an individual or HUF can claim an exemption from long-term capital gains arising from the sale of any capital asset other than a residential house, provided the net sale proceeds are invested in a residential house within the prescribed time limit.

To claim this exemption, the under-construction property must be completed within three years from the date of sale of the capital asset. The date of booking the flat or making payments is not considered relevant when claiming the exemption for self-construction or for booking an under-construction residential house.

This exemption under Section 54F can only be claimed if you do not own more than one residential house on the date of sale of the capital asset.

In some cases where the construction was completed more than three years after the sale of the capital asset, various Income Tax Appellate Tribunals have still granted the exemption, especially when the delay was beyond the taxpayer’s control, and the taxpayer had invested the required amount in full or substantially.

Your situation is different. At the time of booking the under-construction property, you already know that the flat will not be completed within the required three-year period from the date of sale of the plot. Therefore, if your case is taken up for detailed scrutiny, there is a strong possibility that your Section 54F exemption claim could be disallowed. It may not be prudent to take this risk.