Tax Breaks for Homeowners: Concurrent Use of Sections 54 and 54F

Tax Exemptions for Long-Term Capital Gains on Residential Property

Background An individual sold a residential property in May 2024 for a long-term capital gain of Rs 33.23 lakh and purchased an under-construction flat with an allotment letter dated March 2025. The total cost of the new property, including GST and other expenses, is Rs 2.90 crore.

Tax Liability The individual already claimed exemption under Section 54 in the return for FY 2024-25. However, they have made additional payments towards the purchase of the flat in July 2025 and redeemed investments from mutual funds and sold listed shares resulting in long-term capital gains.

Tax Exemption Options Income tax laws allow individuals to claim exemptions from long-term capital gains if investment is made in a residential house property under two separate sections: Section 54 and Section 54F. These sections provide exemptions for investments made within a prescribed time period.

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Section 54 This section allows taxpayers to utilize unindexed long-term capital gains from the sale of a residential house for acquiring another residential house. The benefit of indexation is no longer available.

Section 54F This section provides an exemption for investment in a residential house by investing the net sale consideration received from the sale of any capital asset, excluding a residential house, resulting in long-term capital gains. This exemption is available only if the taxpayer does not own more than one residential house on the date of sale.

Eligibility The construction of the house must be completed within three years from the date of sale of the asset. Claiming exemption under one section does not bar exemption under another section for the same property. Additionally, claiming exemption in respect of long-term capital gains arising in different years for the same residential house property is not barred under both sections.

Conclusion Since the individual does not have more than one house and the construction is expected to be completed within three years from the date of sale of the original residential house, they can claim exemption under Section 54F for long-term capital gains arising on sale of their stated investments on the same property on which they have already claimed exemption under Section 54 in the earlier year. The exemption can be claimed while filing the ITR for the respective years.

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