Can investors claim Section 54 and 54F exemptions for under-construction homes? Expert explains tax rules, builder delays, Rs 10-cr cap

Taxpayers often find themselves navigating complex capital gains rules when selling property or redeeming investments. A common query is whether exemptions under Sections 54F and 54 of the Income Tax Act can be claimed simultaneously for the same new residential house—one arising from long-term capital gains on mutual fund units and the other from the sale of a residential property. Many also seek clarity on correctly claiming the Section 54 exemption when the new property is still under construction, especially amid delays by builders.

According to Sujit Bangar, Founder of Taxbuddy.com, the law does permit claiming both exemptions at the same time—but only when the underlying transactions are different and all statutory conditions are satisfied.

Using Sections 54F and 54 together

Section 54 offers capital gains exemption on the sale of a residential house, while Section 54F extends similar relief for capital gains from other long-term capital assets—including mutual funds—if the proceeds are reinvested in a residential house.

Bangar explained that both exemptions can be applied toward the same new house, provided the taxpayer meets eligibility requirements under each section independently. The key condition is that the reinvestment must be genuine, traceable, and within the permissible timelines. Importantly, the overall exemption is now subject to a combined ₹10 crore cap, introduced through the Finance Act 2023.

Under-construction property

When the new house is still under construction, Section 54 allows a taxpayer up to three years from the sale date to complete construction.

Bangar emphasized that the exemption cannot be denied merely because the builder delays possession. He noted that courts have consistently held the taxpayer eligible as long as the investment was made on time and the delay was beyond the taxpayer’s control.

Supporting documentation strengthens the case, including:

Allotment letter, agreement, BBA

Builder receipts and bank payment proofs

Capital Gains Account Scheme (CGAS) deposit slips

Emails and letters showing construction delays

RERA or consumer forum complaints

Bangar cited important rulings such as ACIT vs Vinay Girish Bajpai (ITAT Mumbai), where the tribunal held that delayed possession due to the builder’s fault does not invalidate Section 54 benefits.

Capital Gains Account Scheme

For under-construction properties, unutilised capital gains must be deposited in the Capital Gains Account Scheme (CGAS) before the due date of filing the return under Section 139(1).

Bangar underlined several critical compliances:

Deposits must be made in time to keep the exemption valid

Withdrawals must follow Form C, and utilisation must be strictly for construction

Evidence of utilisation—builder invoices, bank statements—must be maintained

Form D is essential for reporting utilisation

The CGAS account can be closed only with Assessing Officer approval (Form G)

Any diversion for personal use risks invalidating the exemption.

Rs 10 crore cap and multiple transactions

Bangar clarified that the Rs 10 crore ceiling on exemptions applies at the assessee level per financial year, not separately for Sections 54 and 54F. Even if a taxpayer sells multiple assets and reinvests the gains in one or more houses, the combined exemption cannot exceed Rs 10 crore.

Both sections can indeed be claimed simultaneously—but only for different capital gains events and subject to the aggregate cap.