Capital Gain Exemption U/s 54F, Income Tax

[Jaykumar Pokharna]

My Client has long term capital gain in FY 2023-24 Rs 4500000 & FY 2024-25 Rs 1000000 against sale of Land. He purchased a residential house in FY 2024-25 Rs 7045000. He claimed exemption U/s. 54F in FY 2023-24 Rs 4500000. Can he avail of exemption U/s. 54F in FY 2024-25 on Rs 1000000?

Posts / Replies

[YAGAY andSUN]

Certainly. Below is the reframed legal opinion in core legal language and paragraph format, excluding references to case laws, while maintaining clarity and legal reasoning:

Legal Opinion on Eligibility of Exemption Under Section 54F for Capital Gains Arising in FY 2024–25

1. Facts of the Case

The assessee has earned long-term capital gains from the sale of land amounting to ₹45,00,000 in the financial year 2023–24 and ₹10,00,000 in the financial year 2024–25. The assessee has purchased a residential house property in India during the financial year 2024–25 for a consideration of ₹70,45,000. Exemption under Section 54F of the Income-tax Act, 1961 has already been claimed in respect of the capital gains arising in FY 2023–24 to the extent of ₹45,00,000. The question now arises whether exemption under Section 54F can also be claimed for the capital gains of ₹10,00,000 arising in FY 2024–25 against the same investment in the said residential property.

2. Legal Provisions and Applicability

Section 54F of the Income-tax Act, 1961 provides for exemption from long-term capital gains arising from the transfer of any long-term capital asset (not being a residential house), if the net consideration is invested in the purchase or construction of a residential house within the specified time frame. The provision prescribes that the investment should be made within one year before or two years after the date of transfer, in case of purchase, or within three years after the date of transfer, in case of construction. Further, the assessee should not own more than one residential house, other than the new asset, on the date of transfer.

In the present case, the residential property was purchased in FY 2024–25. This purchase falls within the statutory time limit of two years from the date of transfer of the original capital asset sold in FY 2023–24, and also within the same financial year in which the second transfer (i.e., in FY 2024–25) has occurred. Therefore, in both instances, the date of investment falls within the permissible period for claiming exemption.

3. Interpretation and Justification

The law does not restrict the use of the same residential house investment for more than one capital gain transaction, so long as all other conditions under Section 54F are satisfied for each respective transfer. The exemption is not tied to the transaction count but rather to the investment made and the satisfaction of time-based and ownership-based conditions at the time of each sale.

In the present case, the total amount invested in the residential property, being ₹70,45,000, exceeds the combined capital gains of ₹55,00,000 arising in FY 2023–24 and FY 2024–25. Thus, the capital gains arising in FY 2024–25 are also fully covered by the amount invested in the residential house. The assessee has complied with the ownership condition, as on the date of both transfers, he did not own more than one residential house (excluding the new asset).

4. Conclusion

Based on the foregoing analysis and the plain language of Section 54F, the assessee is legally entitled to claim exemption in respect of the long-term capital gain of ₹10,00,000 arising in the financial year 2024–25, against the same residential house purchased in that year. The exemption is allowable, provided that all other statutory conditions continue to be satisfied and no additional disqualifications arise during the period of compliance.

The claim, therefore, is consistent with the intent and scope of Section 54F and should be admissible under law.