Claim Section 54F Exemption on Capital Gains

Section 54F of the Income Tax Act provides the exemption on long term capital gains on sale of any capital asset (other than a residential house), provided one residential property is purchased.

Exemption under Section 54F is proportionate in nature, and can be claimed for multiple years, by investing in the same property. But overall, the maximum cost of the new asset to be considered for exemption calculation under Section 54F is fixed at Rs. 10 crores. Taxpayers planning to save capital gains should carefully comply with Section 54F provisions to maximize their benefit.

Eligibility

The exemption is available to Individual or HUF only.
The exemption is available on sale of any long-term capital asset other than a residential house (e.g., land, shares, gold, foreign shares).
The asset must be held for the period of more than 24 months to qualify as long-term capital asset (for unlisted shares, land, etc.).
For listed shares the holding period is more than 12 months to qualify as long-term capital assets.

Exemption Benefit

Exemption from long-term capital gain (LTCG) if net sale consideration is invested in one residential house in India.

Time Limit for Investment

Purchase: Within 1 year before or 2 years after the sale.
Construction: Within 3 years after the sale.

Extent of Exemption

Full Exemption: If the entire net consideration is invested (max capped of ₹10 crore)
Proportionate Exemption: Exempt Gain = Capital Gain × (Investment in house / Net sale consideration)
When the amount invested in residential property exceeds Rs. 10 crores, the maximum amount taken for exemption calculation should be restricted to Rs. 10 crores only. This change is applicable from April, 2024.

Net Sale Consideration

Net sale consideration means the sale value of property after reducing the transfer expenses like legal fees, commission, registration charges, etc.,

Capital Gains Account Scheme (CGAS)

If the amount is not fully invested before the ITR due date, deposit the unutilized amount in a CGAS account before the due date.

Restrictions

On the date of transfer, the assessee must not own more than one residential house (other than the new one).
Assessee must not purchase another residential house within 2 years, or construct another within 3 years, apart from the new one.
The new house must be in India (Bharat) only.

Amendment (Finance Act 2023) – ₹10 Cr Cap

From AY 2024–25, maximum exemption limited to net consideration of ₹10 crore.
If you invest more than ₹10 crore, exemption will be calculated only up to ₹10 crore; excess is ignored.