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Taxpayers who reinvest capital gains from selling assets such as shares into a residential property can claim tax exemption under Section 54F of the Income Tax Act.
If the taxpayer buys a ready-to-move-in residential property, the purchase must be completed within two years from the date of sale of the asset that generated the capital gains.
Taxpayers who reinvest capital gains from selling assets such as shares into a residential property can claim tax exemption under Section 54F of the Income Tax Act. But, a common question arises when payments for an under-construction home are made in stages — can the exemption be claimed across multiple years?
According to a query addressed under Moneycontrol‘s Ask Wallet-Wise, the answer depends on whether the taxpayer meets the conditions laid down under Section 54F and completes the investment within the prescribed time limits.
What is Section 54F?
Section 54F of the Income Tax Act allows individuals and Hindu Undivided Families (HUFs) to claim exemption from long-term capital gains (LTCG) arising from the sale of any capital asset other than a residential house property.
The exemption is available if the net sale consideration from such an asset is invested in purchasing or constructing a residential house property in India within a specified time period.
This provision is widely used by investors who sell assets such as shares, mutual funds, land, or gold and reinvest the proceeds into residential real estate to reduce their tax liability.
Time limits for claiming the exemption
The time window for claiming the exemption depends on the nature of the property being purchased.
According to an expert cited by Moneycontrol, if the taxpayer buys a ready-to-move-in residential property, the purchase must be completed within two years from the date of sale of the asset that generated the capital gains.
However, if the taxpayer books or constructs a house, including an under-construction property, the construction must be completed within three years from the date of sale of the capital asset.
Tax rules also allow the exemption if the residential property was purchased up to one year before the sale of the capital asset.
Who can claim the benefit?
The benefit under Section 54F is available only to individual taxpayers and HUFs. Companies, partnership firms, and other entities are not eligible to claim the exemption under this provision.
Another important condition is that the taxpayer should not own more than one residential house on the date of sale of the capital asset, apart from the new property being purchased under Section 54F.
Can the exemption be claimed across multiple years?
The law does not restrict the number of years in which a taxpayer can claim exemption under Section 54F, provided the investment conditions are satisfied.
If capital gains arise in different financial years and the proceeds are used to pay for the same residential property, the exemption can still be claimed each time, as long as the house construction or purchase is completed within three years from the date of the first sale of the asset.
For example, a taxpayer who books an under-construction apartment and makes staggered payments by selling shares over multiple years can claim the exemption for each tranche of capital gains, provided the property is completed within the prescribed timeline and other eligibility conditions are met.
March 18, 2026, 11:41 IST
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